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5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
A study of 2.6 million American employees reveals that automatic enrollment programs increase employee participation in 401(k) plans, but are insufficient to insure that participant contribution levels and investment choices will provide participants with adequate retirement savings.
The recent study by Hewitt Associates compared the saving and investing habits of employees who were automatically enrolled in their companies' 401(k) plans versus that of employees who joined such plans voluntarily. The study showed that automatic enrollment programs raised the level of employee participation to 90%, a substantial increase over the 68% participation level at companies that did not offer automatic enrollment. The study further found, however, that employees who voluntarily enrolled in traditional enrollment programs tended to have higher contribution rates. In comparison to voluntarily enrolled employees, automatically enrolled employees tended to maintain contributions at the default contribution rate, have less-diversified portfolios, and were less likely to actively rebalance or make transfers within their plans.
Seventy percent of employers with automatic enrollment programs were found to have a default contribution rate at or below 3%. Automatically enrolled employees tended to have lower contribution rates, and were less likely to contribute at rates higher than the company match. Since the default investments for 42% of automatic enrollment plans were stable value or money market funds, automatically enrolled participants had significantly less equity exposure than employees who were traditionally enrolled.
In order to insure that participants' investments are adequately diversified and grow at an adequate rate, Hewitt recommends that employers with automatic enrollment programs use equity-based default options, specifically target maturity funds, instead of stable value or money market accounts. Hewitt also recommends that employers strongly consider increasing the default contribution rate and coupling automatic enrollment with contribution escalation, which automatically increases employee contributions to the 401(k) plan.
"As recent retirement legislation like the Pension Protection Act encourages more companies to consider adding automatic enrollment to their 401(k) plans, it's critical that they not only focus on getting people into the plan, but also consider the quality of participation," states Pamela Hess, Hewitt's Director of Retirement Research. "Companies should take time to review appropriate default contribution rates and investment funds, and consider coupling automatic enrollment with other automated tools, targeted education and resources that force employees to save and invest more wisely."
For more information on this and related topics, consult the CCH Pension Plan Guide.
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