DIA Finds Trend Toward 401a Plans

The report said that 58% of 401(a) plan administrators see their DC plans as having a major impact on recruiting and retention, compared to 29% of DC plan administrators in general. Approximately one fifth of firms reported having this type of plan.

Meanwhile, 25% of respondents with a DB plan said they will consider terminating their plan. Others report they will consider reducing benefits (24%), freezing the plan (23%), or moving to a cash balance plan (20%). This in spite of that fact that nearly all plan sponsors felt their defined benefit plan positively influences their ability to attract and retain good employees.

All of sponsors surveyed offered a defined contribution plan, while 67% also offered a defined benefit plan. Thirty four percent of corporations surveyed offered a non-qualified deferred compensation plan. Ninety two percent of employers offered a 401(k) plan, and those with 2,500 – 4,999 as well as those with over 10,000 employees were more likely to offer both a 401(k) and 401(a) plan.

Of those who offered a defined benefit plan, two in three offer a traditional plan, while one in three offer a cash balance or pension equity plan.

Most of the responsibility for participant communication and education on defined contribution and defined benefit plans fell on Human Resources staff. The most commonly available information source for both plan types, according to the report, was the company intranet. For those with DC plans, twenty two percent of respondents said they were considering outsourcing their total benefits administration and 11% have either finished implementing outsourcing or are in the process of implementing it. Administrative cost and staffing concerns were most cited as reasons for outsourcing. Nearly all firms use outside vendors for DB plan administration.

Employer Contribution

Ninety one percent of companies make employer contributions to their 401(k) plan and two thirds state a fixed contribution in the plan document. The size of the employer contribution typically increases as the number of employees increases. Those employers who have only DC plans made smaller contributions to these plans in 2004 than companies who had both plan types. More than one in three companies contributed at least $10 million to their DB plan in 2004.

Sponsors listed participant education and participation as their top issues. Just over 70% of employers had a plan participation rate of 70% or higher in their 401(k)’s. Almost a fourth of companies said the average employee deferral to their plan is 10% or greater. Sixty two percent of DC plan administrators said the EGTRRA tax credit has increased levels of participation and 65% said it has increased levels of contributions.

Improving employee education was cited by 43% as the most frequently planned improvement to their retirement plan programs. Adding investment options or offering financial planning is being considered by one in three companies. In addition, a fourth of companies are considering consolidating recordkeeping or investments with a single provider and 16% are looking into reducing the number of providers. Nineteen percent of DB sponsors are considering bundling services with a single provider.

The survey was taken from a panel of 204 employers with 1,000 employees or more. More information can be obtained by contacting Eric Henon, henone@divinvest.com , or Doreen Kanouse, kanousd@divinvest.com .