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Pension and Employee Benefits: Code, ERISA, & Regulations
This series provides an authoritative and comprehensive reference to the full text of benefits-related provisions of the Internal Revenue Code, the full text of ERISA, and related proposed and final regulations, as well as the official IRS and DOL preambles, and Committee Reports.
A majority of large employers now automatically enroll workers into their 401(k) plans and target date funds are the most prevalent default investment option, according to a survey by Towers Watson. Target date funds, also known as "life cycle" funds are designed to simplify long-term investing by automatically adjusting to more conservative investments as the fund approaches a set date.
The Towers Watson survey of 334 companies with 1,000 or more employees, conducted online during April and May 2010, found that 57% automatically enroll employees into their 401(k) plans. This includes 39% that automatically enroll new employees and 18% that automatically enroll all employees. Another 3% plan to begin automatic enrollment by next year, the survey found, and an additional 18% are considering it. The survey also revealed that in 2009 relatively few employees declined to participate after they were automatically enrolled --85% of companies report fewer than 10% of employees opted out of the 401(k) plan.
"The Pension Protection Act of 2006 made it easier for employers to take advantage of new methods for getting workers to save for retirement," said Alec Dike, senior retirement consultant at Towers Watson. "Since the first of several rules from that law went into effect, many employers have adopted the automatic enrollment and escalation of contribution provisions as they seek to help employees save for their retirement," he added.
Nearly three fourths use target date fund as default option
Nearly three-fourths of survey respondents (72%) use target date funds as the default option, followed by 13% who use balanced or lifestyle funds. The Towers Watson survey found that 78% of those using target date funds as their default option have selected funds not affiliated with their recordkeeper.
"Evaluating target date funds is critical for employers, particularly as the number of plan sponsors that use these funds as their default option for workers who are automatically enrolled in 401(k) plans continues to grow," said Sue Walton, senior investment consultant at Towers Watson. She added that choosing and developing the most appropriate target date fund strategy will be "crucial for employers to help their employees save for a secure and comfortable retirement."
Source: Towers Watson press release, June 30, 2010.
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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