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CCH® PENSION AND BENEFITS — 2/19/08

PSCA survey finds trend toward earlier participation in 401(k) plans

More employers are allowing earlier participation in their 401(k) plans than in the past and more are providing matching funds earlier in an employee’s career, according to a survey released by The Profit Sharing/401k Council of America (PSCA).

The PSCA “401(k) and Profit Sharing Plan Eligibility Survey” reflects defined contribution plan eligibility data collected in the fall of 2007 from 405 companies, from a broad spectrum of industries and locations. Data was collected for three different eligibility categories: participant deferrals, company matches, and company profit sharing.

The survey found that 400 of the plans permit employee contributions to an employer-sponsored defined contribution plan, and 86.2% of the plans offer employer matches. Nearly 65% of the responding companies make employer contributions other than matches.

Trend toward earlier participation

This is the tenth year that the PSCA has collected defined contribution plan eligibility data. The changes over time have been significant. In 1998, only 24% of plans allowed employees to begin contributing to their 401(k) plans immediately upon employment. This percentage more than doubled by 2007, as 51% percent of all plans and 63.8% of plans with 1,000 or more employees now permit immediate participation in their 401(k) programs. Employees are eligible to participate within the first three months of employment at 70.5% of companies and at 82.5% of large companies. Only 17% have a one-year waiting period.

Minimum length-of-service and age requirements

Only three years of comparable eligibility survey data exists for matching and non-matching company contributions. However, for matching contributions there is a trend away from one-year eligibility requirements. In 2007, only 35.8% required one year of service or longer for matching contribution eligibility. By contrast, a slight majority (51.7%) still require that employees work for the company one year or longer to be eligible for non-matching company contributions.

A large number of plans (42.1%) have no minimum age requirement for plan participation, though a slightly smaller number (37.5%) have no age restriction for non-matching company contributions. The most prevalent minimum age requirement is 21, though 20.8% of employers require a person to be 18 before they can participate in the plan.

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