News & Information

 

FEATURED PRODUCT

CCH's Law, Explanation and Analysis of Health Care Reform Legislation
Get full explanation and analysis of every aspect of health care reform legislation. These legislative changes will imminently impact thousands of employers, private insurance providers, and the Medicare and Medicaid programs. Pre-order today and save $20!

Learn More »

CCH® PENSION AND BENEFITS — 12/13/07

Employers focusing on “quality” of 401(k) plan enrollment, Hewitt study shows

Employers are taking more proactive steps to prepare their employees for retirement through a more sophisticated design of the automated features of their 401(k) plans, according to a recent survey by Hewitt Associates, a global human resources services company.

Shift in priorities noted

Hewitt’s biennial survey of more than 300 mid to large companies offering 401(k) plans revealed that only 25% of companies viewed a high participation rate as the primary measure of success for their 401(k) plans, down from 43% in 2005. Instead, many are focusing on their 401(k) plan’s ability to facilitate a sufficient retirement income for their employees. As a result of this shift in priorities, a growing number of companies are structuring their 401(k) plans in a way to not only ensure that employees participate, but also to help improve the quality of participation once they are enrolled.

According to Hewitt’s survey, approximately one-third (34%) of companies automatically enrolled employees in their 401(k) plans in 2007, up from just 19% in 2005. Of those, more than 77% defaulted employees into a diversified portfolio, such as target-risk, target-maturity or balanced funds. This is up from 39% in 2005. More than half of plans utilized target-maturity portfolios as a default. Further, 83% of companies set their default contribution rates as three percent or higher, compared to just 66% two years ago. In addition, 28% used contribution escalation in conjunction with automatic enrollment, with more than 40% escalating employees to target contribution rates of between 8 and 15 percent of compensation.

“It’s obvious that today’s employers understand that the majority of their employees take a back seat in managing their retirement. This is why we continue to see a steady number of companies putting their 401(k) plans on autopilot and adopting features like automatic enrollment,” said Pamela Hess, director of retirement research at Hewitt Associates. “What’s encouraging is that companies realize that simply automatically enrolling employees into the 401(k) plan will not get workers where they need to be in terms of retirement savings,” she said. “As a result, they are shifting their priorities from basic enrollment to quality enrollment. Employers are helping their employees obtain sufficient retirement income by picking more appropriate default contribution rates and investment funds, and coupling automatic enrollment with other automated tools that force employees to save and invest more wisely.”

Visit our News Library to read more news stories.