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Recent legislation, tighter reporting and funding rules, and the gradual shift of risk from employers to employees are prompting many companies to increase their focus on reducing retirement plan risk of underfunding and ensuring that employees take appropriate advantage of their retirement plans, a new study by Hewitt Associates reports.
Hewitt’s study of 190 mid- to large-sized U.S. companies revealed that new funding rules for pensions and increased scrutiny of retirement plan operations are prompting more companies to administer their defined benefit plans with an eye to reducing plan risk of underfunding due to investment losses in 2008. Among those companies offering pension plans, almost two-thirds (63 percent) said they are very likely to perform funding and accounting projections, 30 percent plan to perform an asset liability study, and 29 percent are very likely to assess the risks that their pension plans are running based on current strategies. More than one half (55 percent) of companies offering a defined contribution plan also intend to review their fund operations, including expenses and revenue sharing costs. Fiduciary responsibility is also a focus, with 35 percent of companies saying they are very likely to review their 401(k) plan governance structure or hire a third party monitor to review their investment options.
According to the Hewitt survey, the pace at which employers will modify their defined benefit plan designs will slow dramatically this year. Almost three quarters (72 percent) of companies that offer a pension plan say they will make no changes to those plans in 2008, compared with just 41 percent last year. Only 3 percent said they are very likely to close their plans, and 2 percent said they are likely to freeze their plans, down from 6 percent and 4 percent respectively.
Today, 44 percent of companies offer automatic enrollment to their employees, compared with 36 percent in 2007. Among those plans that do not currently offer automatic enrollment, 30 percent said they are very likely to offer it in 2008, while 27 percent are somewhat likely. More than one-fifth (22 percent) of companies currently automatically enroll both existing and new participants in their 401(k) plans, up from 15 percent in 2007, and another 27 percent are very likely to do so in 2008.
In addition, 44 percent of companies have a form of contribution escalation in their 401(k) plans, up from 31 percent in 2007. More than one-fifth (22 percent) of companies offer contribution escalation as part of automatic enrollment, and 8 percent of those companies that do not offer the feature plan to add it as a default under automatic enrollment. Among those companies that offer automatic enrollment, almost three quarters (72 percent) plan to convert their default investment fund to a premixed portfolio fund.
In other findings, the survey reported that:
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