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U.S. Master Pension Guide, 2012 Edition

U.S. Master Pension Guide, 2012 Edition
Part of CCH's Master Series of professional guidebooks. The book provides a comprehensive explanatory overview of qualified retirement plans and other retirement arrangements, reflecting up-to-date law changes and regulations. Benefit COLAs, calendars, and tables reflect the year 2012 figures.

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CCH® PENSION AND BENEFITS — 03/26/09

Majority Of 401(k) Plan Sponsors Have Not Made Any Plan Changes During The Economic Downturn

from Spencer’s Benefits Reports: According to a recent survey of 401(k) plan sponsors, approximately three-fifths of respondents stated that the recent financial crisis had not made any changes to their companies' 401(k) plans. The survey, Trends in 401(k) Plans, was conducted electronically in December 2008 and was completed by members of the American Benefits Council and WorldatWork.

Key findings of the survey include the following:

  • More than 90% of participating organizations offer a 401k plan to employees.

  • Despite the widely reported drop in account balances, 66% of organizations indicated that at least 70% of their eligible employees participated in the 401(k) plan in 2008.

  • Almost half of participating organizations (49%) reported that more than 10% of eligible employees elected a maximum contribution to their plan in 2008, while 17% reported that more than 50% of employees elected the maximum contribution. With the passage of the Pension Protection Act of 2006 (PPA), these percentages might increase as more employers adopt automatic enrollment and automatic escalation plan provisions.

  • Fifty-two percent of participating employees contribute 5% to 7% of their pay per paycheck.

  • Half of employers offer a 3% to 4% matching contribution to employees' 401(k) plans based on the employee's contribution.

  • Cash continues to be the preferred form of employer 401(k) match, increasing by 17% since 2003 to 91%. A significant shift also has occurred toward the removal of the holding requirement on company stock since 2002. While the majority of organizations had a specific time limit in 2002 and 2003, 77% of organizations reported that they did not have a holding requirement in 2008.

  • A small percentage of companies (11%) have more than 20% of their employees’ aggregated 401(k) plan money in company stock.

  • Only 5% of responding organizations have either eliminated or decreased their 401(k) match in the 12 months prior to data collection in December 2008. Similarly, plan activities such as participation rates and employee contribution rates have remained about the same for the majority of companies. However, respondents reported that the number of hardship distributions and loans taken out of 401(k) plans has increased in nearly half of the companies, which was expected considering the contracting economy.

  • Nearly half (47%) of companies provide investment advice through a third-party adviser.

  • Domestic equity was most commonly rated among the top three investment choices in terms of popularity among participating employees. Target-date/lifecycle funds also are among the vehicles ranked with the highest participation, indicating that more employers are offering these plans to their work force and more employees are taking advantage of them.

  • Fees were ranked among the two most important consideration factors by 28% of companies, compared to investment returns (51%), risk characteristics (34%), and diversification (33%).

  • Forty-four percent of participating organizations offer automatic enrollment in 401(k) plans. The survey notes that the passage of the PPA, which encourages the use of automatic enrollment with guidelines on default percentages and funds, has provided momentum for automatic enrollment.

  • For organizations with an automatic escalation clause, the majority (69%) apply a 3% initial default employee contribution. The escalation rate after initial default contribution level is 1% to 1.99% per year for more than 90% of organizations.

  • Organizations that automatically enroll employees in the 401(k) plan, but do not have an automatic escalation clause, typically default the employee contribution to 3%.

    • A total of 505 sponsors of 401(k) plans participated in the survey. For further information, visit http://www.americanbenefitscouncil.org.

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