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CCH® PENSION — 01/04/10

Hewitt survey shows significant increase in adoption of auto enrollment

A new survey by Hewitt Associates shows a significant increase in the adoption by employers of automatic enrollment features in their 401(k) plans. The survey also found increased use of target date funds as default 401(k) investments and an increased focus on lowering plan expenses.

Automatic enrollment

Hewitt's biennial survey of more than 300 mid- to large-sized companies found that the percentage of employers automatically enrolling employees into the 401(k) plan has almost doubled in just two years, from 34% in 2007 to 58% in 2009. Of those plans using automatic enrollment, 69% now default workers into a target date fund, up from 50% in 2007. Hewitt's survey also showed a steady increase in the number of employers defaulting employees into contribution rates at 3% or higher, from 83% in 2007 to 89% in 2009. In addition, the number of companies offering automatic contribution escalation —where employees can elect to have their contribution rates automatically increased over time without any additional action —also increased to 44% in 2009, up from 35% in 2007 and almost five times higher than in 2005 (9%). Further, Hewitt found that nearly half (47%) of employers now offer automatic rebalancing, compared to only a quarter (26%) in 2005.

"Over the past decade, design changes in 401(k) plans have generated many positive improvements in certain employee investment behaviors and participation rates, but there's still work to do," said Pam Hess, Hewitt's director of retirement research. "Companies need to be focused not only on getting workers to save, but getting them to save at levels that put them closer to meeting their retirement goals. This means reviewing appropriate default contribution rates and investment funds, and considering coupling automatic enrollment with other automated tools, targeted education and resources that force employees to save and invest more wisely."

Investment selection

In addition, the Hewitt survey revealed that more than three quarters (78%) of companies now offer target date portfolios, up from 58% in 2007 and 28% in 2005. Further, half of employers offer workers outside investment advisory services —including advice, guidance and/or managed accounts —up from 40% in 2007 and 37% in 2005.

Plan expenses

Lowering plan expenses is becoming a higher priority for an increasing number of employers, Hewitt found. According to Hewitt's survey, 84% of employers have attempted to calculate the total cost of maintaining their 401(k) plan —up from 60% in 2007 and only 29% in 2001. Almost three-quarters of employers (74%) have made efforts to reduce expenses, up from 57% in 2007. These efforts include negotiating with their current service provider to reduce fees (66%), swapping out funds for lower cost alternatives (51%) and working with fund managers for alternative pricing —through collective trusts and separate accounts (18%).

The survey found that fee disclosure is also becoming an increasing priority, with most plan sponsors proactively disclosing administrative fees to participants. Hewitt found that only 18% of plans disclose administrative fees only upon a participant's request, as opposed to 28% two years ago.

"It's encouraging to see more companies examining their 401(k) plan expenses," said Hess. "From an employee standpoint, saving even a small amount in fees can substantially —and positively —impact their long-term retirement income," she added.

Source: Hewitt Associates news release, November 4, 2009.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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