Participation in 401(k) plans continues to rise, according to a new survey. Plans with more than 70 percent participation by eligible employees rose to 67 percent, up from 63 percent a year ago, according to Deloitte Consulting’s annual 401(k) Benchmarking Survey, conducted jointly with the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists.
Further, the percentage of plans with participation rates exceeding 90 percent increased to 24 percent from 19 percent. The survey cites several reasons for the rising enrollment. For instance, nearly half (49 percent) of surveyed plan sponsors now allow employees to participate in 401(k) plans—also known as defined-contribution plans—immediately upon being hired, versus 45 percent in the prior survey.
In addition, a higher percentage of respondents—8 percent this year versus 6 percent in 2005—reported they had, in the past year, made participation eligibility “less restrictive.” Indeed, 23 percent of respondents reported automatically enrolling new employees, versus 14 percent a year earlier. Also, 29 percent reported that they are considering auto-enrollment, whereas only 14 percent were considering that policy change in the prior survey.
Despite the increase in participation, most companies are not optimistic that their employees are financially prepared for retirement. According to the survey, only 13 percent of 830 survey respondents said that “most” employees either are, or will, be financially prepared for retirement.” Twenty percent said that “very few” are, or will be, prepared, while 65 percent concluded that only “some” employees will be prepared.
“While the increases in participation are promising, the lack of employee preparedness for retirement is alarming and suggests that there’s still plenty of room for improvement in 401(k) plan design and communication,” commented Leslie Smith, a director in Deloitte Consulting’s Human Capital practice and the survey’s director. As a result, added Smith, “employers have made employee retirement security a priority goal”.
Interestingly, the survey found that one of the fastest growing new 401(k) investment options is the time-based lifestyle fund, which targets plan participants according to their expected retirement date, and gradually shifts the fund’s asset allocation from stocks to bonds as the target retirement date approaches.
According to the results, about 44 percent of respondents reported offering this type of investment option now, up sharply from 28 percent the prior year. Overall, respondents provided 17 investment choices to the average participant, compared to 15 in the prior year’s survey.
The survey also revealed dramatic success in boosting employee deferrals via so-called “step-up” programs. For example, 16 percent of the respondents reported now offering step-up programs as a stand-alone feature, compared to only 5 percent in the last survey.