Participation Rates Bounce Back, But…

December 7, 2004 ( - Participation rates were higher in 2004 than last year, snapping a two-year streak of declining participation rates. However, while the rate was higher, it was not yet back to 2002 levels.

The average participation rate for the nearly 4,000 plan sponsor respondents to PLANSPONSOR’s eighth annual Defined Contribution Survey was 74.3%, up from 72.5% in 2003. Participation rates rose in all four identified market segments in this year’s survey – but failed to recover fully from the declines registered the past two years.

That may, in part, explain a continued dissatisfaction with participant communications relative to other service levels. In fact, “overall participant education program” again drew the lowest satisfaction ranking in our survey, while participant communications materials and call centers failed to fare much better.

Among strategies to expand participation further, automatic enrollment appears to be enjoying a resurgence, with nearly 20% now employing the strategy of requiring participants to “opt out” of participation, rather than requiring an affirmative election. Larger plans were more likely to do so, but the trend was higher across all market segments.

Match Up?

Another key factor in participation has traditionally been the employer match. Only half as many plan sponsors were contemplating a change in the company match this year as last but, where a change was contemplated, they were more likely to be increasing it than the other way around.

The most common match, cited by more than a third of the respondents, was less than 50% on the first 6% deferred, but that level was significantly more common among smaller plans than among those with more than $200 million in assets. Nearly as many (30.2%) are matching at the rate of 50% of the first 6%.

Finally, plan sponsors have been slowly, but surely, expanding their fund menu for years, and this year was no exception. In 2004, the average number of fund options was 18.6, up from 16.7 a year ago. Larger plans tended to have more options (28.7 versus 16.9 among plans with less than $5 million in assets). However, despite the larger menu, the average number of fund choices actually used by participants in the largest plans was a full fund choice less than those at smaller plans-just four funds, on average, versus five.