More than half of large companies are using automatic enrollment in their retirement plans, and overall, more employers have begun pulling the trigger on automatic enrollment, a new study shows.
The Profit Sharing/401(k) Council of America, a national non-profit association based in Chicago, recently completed its annual survey on employer behavior in the retirement arena. The study analyzed 1,011 plans with 7.4 million participants and more than $730 billion in plan assets in 2007. It was completed by employers last December, either online or in a written survey.
Last year, 35% of all employers used automatic enrollment, an in-crease of 50% from 2006, the study found.
"What a great time for people to be automatically enrolled, when the market is down," said David Wray, president of the PSCA.
The study also showed that 53.2% of larger companies — those with 1,000 or more employees — were using automatic enrollment
Smaller employers may be reluctant to use automatic enrollment simply because they already have high enrollment, Mr. Wray said.
The typical plan has approximately 65% of assets invested in equities, according to the analysis. Assets are most frequently invested in actively managed domestic-equity funds (29.1%), indexed domestic-equity funds (10%), stable-value funds (8.6%) and balanced-stock/ bond funds (8%).
CATCH-UPS POPULAR
Catch-up contributions for participants 50 and older are permitted in 99.1% of all plans. Of the plans that permit such contributions, 33.5% offer a match on them. The percentage of eligible employees who make catch-up contributions ranged from 43.1% at the smallest companies to 12% at the largest.
The salary deferral rates into 401(k) plans have also steadily gone up, according to the study. In 1991, the average deferral rate for non-highly compensated workers was 4.2%. In 2006, it was 5.4%, and in 2007, it was 5.6%.
Even though there's been improvement in employees' efforts to save for retirement, more needs to be done, said Fred Reish, managing director at Reish Luftman Reicher & Cohen, a Los Angeles law firm.
He believes it's up to advisers to persuade employers to add automatic-enrollment features and to persuade employees to defer more money into their retirement plans.
"Whether or not plans are automatically enrolled is a function of the adviser and not the plan sponsor," he said. "Why do we have such huge rates of adoption of automatic enrollment for large companies and not for small companies? I think it's primarily the adviser and I think we need to improve that."
Mr. Reish believes that employers and employees aren't communicating about automatic enrollment. The most commonly cited reason for not automatically enrolling employees is a concern that employees won't like it, he said.
"Most employers do care about employees," Mr. Reish said. "The ones I work with seem to care. I think if we properly educate them — we'll get more automatically enrolled."
It's true that once employers better understand automatic enrollment, they start to offer it to their employees, said Terrence Morgan, an adviser and president of Oklahoma City-based OK401k Inc., which advises companies on their 401(k) plans. He declines to list his firm's assets.
"Once they understood the value of it, they could see the beauty of it," Mr. Morgan said. But he pointed out that it has taken awhile for employers to act since this provision was passed by Congress in the fall of 2006.
"It's been a long process of education that's finally sunk in," he said.
Advisers overall seem to be succeeding in their efforts to get employers to use automatic enrollment, said Blaine Aikin, president and chief executive of Fiduciary360 LLC, a Sewickley, Pa.-based firm that trains advisers in the retirement arena.
Automatic enrollment is good for everyone, he said: It helps plan sponsors fulfill their fiduciary duties, it allows advisers to get more assets in the plan to manage and it gives participants the push they need to start saving.
E-mail Lisa Shidler at [email protected].
