Auto Plan Features Still on the March in 2007

A Hewitt news release said that more than half (58%) of the 146 companies studied plan will automatically enroll employees into 401(k) plans by the end of the year, and just over a third (34%) already couple or plan to marry automatic enrollment with features automatically escalating the worker’s deferral.

More evidence of another major plan trend, 85% offer or plan to offer target maturity/premixed lifestyle funds and more than half (54%) offer or plan to offer investment guidance, according to the Hewitt study.

Almost one in five (19%) of companies that already offer automatic enrollment say they plan to increase the default contribution rate and more than two-fifths (43%) intend to change the default investment fund to a Qualified Default Investment Alternative (QDIA) (See DoL Releases Default Investment Option Safe Harbor ). Almost one-fifth (19%) plan to apply automatic enrollment to additional classifications of workers and expand the feature beyond just new hires.

“The provisions of the Pension Protection Act and the Department of Labor’s guidance are accelerating the rapid shift toward automation in 401(k) plans,” said Pamela Hess, director of retirement research at Hewitt Associates, in the news release. “What’s particularly encouraging is we see an increasing number of companies focusing their efforts on improving the quality of 401(k) participation, particularly under automatic enrollment – choosing more appropriate default contribution rates and investment funds, and/or coupling automatic enrollment with other automated tools, targeted education and resources. Implementing these tools will not only get employees into the 401(k) plan, but help them save and invest more wisely.”

According to Hewitt’s study, half of companies (50%) say they plan to review their defined contribution fund operations, including fund expenses, revenue sharing and communication to employees and almost half (48%) will conduct a review of fund offerings. Just 12%, however, said they were very likely to find ways to reduce the costs of funds they offer.

In general, Hewitt’s study found that 2007 is likely to be a time of change at many employers’ retirement plans with almost 40% likely to measure the competitive position of their current programs and 35% likely to assess their program design.

The Hewitt study found that among the issues on employers’ 2007 agenda for pension change are:

• an overall evaluation of retirement programs.
• a continued focus on managing costs and risks.
• enhanced retirement education and guidance; and
• a continued emphasis on automating the 401(k) plan to help employees maximize the benefits of their retirement plans.

Meanwhile, according to Hewitt, the defined benefit environment continues to be "challenging," particularly with new legislation, new accounting rules and a continued low interest rate environment.

Still, the majority of companies offering pension plans are not likely to make changes to them in 2007, a finding that mirrors the past two years. However, 6% of companies sponsoring open plans say they are very likely to close participation to new employees, 4% plan to freeze accruals and 11% are very likely to change the plan design. An additional 6% plan a transformation from a traditional pension plan to either a cash balance or pension equity plan.

Hewitt's survey found that companies - both with ongoing plans and with closed and frozen plans - are likely to focus attention on funding policy and asset allocation in 2007, with 81% saying they are very or somewhat likely to perform funding and accounting projections and 73% very or somewhat likely to review funding strategy. Almost half (46%) say they are very or somewhat likely to adjust the overall asset allocation of their plans.

Other findings included:

• 57% of companies offer or are very likely to offer automatic rebalancing in 2007, up from 47% in 2006.
• About one in 10 companies (12%) added a Roth 401(k) in 2006 and 11% said they were very likely to do so in 2007.
• Forty-three percent of companies say they offer or are very likely to add third-party investment advisory services, and nearly one in five (19%) offer or plan to offer an in-person investment adviser.
• One quarter (24%) of companies offer or plan to offer managed accounts by the end of 2007, which is consistent with last year.
• Consistent with previous years, the majority of companies say they plan to leave alone their company match (78%). Eight percent say they plan to add/increase the company match and only 1% plan to reduce or eliminate the match.

More about the study is here .