Auto Features, T-D Funds Seeing Rapid Growth in Larger 401(k) Plans

November 4, 2009 ( - As they have elsewhere in the retirement plan market, 401(k) auto plan features have taken hold in a big way among mid- to large-sized employers, according to a new Hewitt Associates study.

A Hewitt news release said its biennial survey of more than 300 companies found that the number of employers adopting 401(k) plan auto enrollment jumped from 34% in 2007 to 58% in 2009. In addition, Hewitt found that 69% of the programs using automatic enrollment default workers into a target-date fund, up from 50% in 2007.

The number of employers defaulting employees into contribution rates at 3% or higher increased from 83% in 2007 to 89% in 2009.

The survey found the number of companies offering automatic contribution escalation also increased to 44% in 2009, up from 35% in 2007 and almost five times higher than in 2005 (9%). Further, 47% offer automatic rebalancing, compared to 26% in 2005.

Moving Beyond Enrollment

Hewitt researchers said the numbers are part of the general industry trend that has moved beyond simply getting people into the plan to trying to encourage participants to save enough to last through their retirement years. Fund performance and plan fees also continue to be top of mind for sponsors, Hewitt asserted.

class=”NormalDS”> “Over the past decade, design changes in 401(k) plans have generated many positive improvements in certain employee investment behaviors and participation rates, but there’s still work to do,” said Pamela Hess, Hewitt’s director of retirement research, in the news release. “Companies need to be focused not only on getting workers to save, but getting them to save at levels that put them closer to meeting their retirement goals. This means reviewing appropriate default contribution rates and investment funds, and considering coupling automatic enrollment with other automated tools, targeted education and resources that force employees to save and invest more wisely.”

In terms of their investment lineups, the survey revealed that 78% of respondents offer target-date portfolios, up from 58% in 2007 and 28% in 2005. Further, 50% offer workers outside investment advisory services – including advice, guidance, and/or managed accounts—up from 40% in 2007 and 37% 2005. Some 29% offer one-on-one financial counseling, and 28% offer online guidance, compared with 22% and 18%, respectively, two years ago.

More than a quarter (26%) offer managed accounts, up from 11% in 2007.

According to Hewitt's survey, 84% of employers have attempted to calculate the total cost of maintaining their 401(k) plan - up from 60% in 2007 and only 29% in 2001. Almost three-quarters of employers (74%) have made efforts to reduce expenses, up from 57% in 2007. These efforts include negotiating with their current service provider to reduce fees (66%), swapping out funds for lower cost alternatives (51%), and working with fund managers for alternative pricing - through collective trusts and separate accounts (18 %).

Some 59% ranked investment fees/expense ratios as one of the most important factors in selecting investment options for their 401(k) plans.

The survey also found that fee disclosure is becoming an increasing priority. Most plan sponsor respondents proactively disclose administrative fees to participants. Just 18% of plans disclose administrative fees only on a participant's request, versus 28% from two years ago.

Survey results also included that:

  • Ten percent of companies temporarily suspended their employer matching contributions over the past two years. An additional 10% stopped making nonmatching profit sharing contributions (7%) and discretionary nonmatching contributions (3%).
  • 93% offer some type of employer contribution to the 401(k) plan. The majority (65%) offer a fixed match, most commonly 100% of employee contributions up to 6% of pay.
  • In plans with a match, workers receive an employer match earlier than before: 56% of plans do not have any service requirements for participants to receive employer matching contributions, up from 44% in 2007.
  • Seventeen percent of employers invest the employer matching contribution exclusively in company stock, down from 23% in 2007 and 45% in 2001.
  • Employers are providing workers with earlier access to 401(k) plans. In 2009, 74% of plans did not have a service requirement for participation in a 401(k) plan, up from 61% in 2007.

Prevalence of Features in 401(k) Plans

class="NormalDS" align="center"> 

class="NormalDS" align="center"> 2005

align="center"> 2007

align="center"> 2009


class="NormalDS"> Automatic Enrollment

class="NormalDS" align="center"> 19%

align="center"> 34%

align="center"> 58%

Automatic Rebalancing

align="center"> 26%

align="center"> 42%

align="center"> 47%

Automatic Contribution Escalation

align="center"> 9%

align="center"> 35%

align="center"> 44%

Premixed Portfolios

align="center"> 63%

align="center"> 77%

align="center"> 83%

Investment Advisory Services

align="center"> 37%

align="center"> 40%

align="center"> 50%