Study: K Plan Popularity Exploded in Past Decade

September 26, 2005 ( - The popularity of the 401(k) retirement plan has skyrocketed over the last 10 years, according to a new research report.

A Hewitt Associates news release said its study of K plan trends over the last decade found that participation blossomed from 35% in 1995 to 64% in 2005. With plan sponsors increasingly trying to step up their plan utilization through plan design, delivery and communications, participation has been hovering between 74% and 79%.

Before tax contributions have gone from 6.7% in 1999 to 7% this year, according to the study.

Plan sponsors are increasingly relying on auto enrollment and immediate plan eligibility as two ways to convince more employees to participate, the Hewitt study said. Some 4% had auto enrollment in 1997 compared to 19% in 2005. Another popular plan feature is automatic contribution level increases, with only 1% including the feature in 2003 while that number bumped up to 9% in 2005. Another 10% said they plan to add it in the next year.

Illustrating the growth of investment education/advice services, 91% of plans offer investment education while 37% offer third-party advisory services. Plan sponsors have also made it easier for many participants to diversify by easing restrictions on handling company stock, Hewitt said. Although 24% restricted diversification out of company stock in 1999, the number dropped to 8% this year. The number of firms offering company stock has dropped a bit from 49% in 2003 to 43% this year, the study said.

In another increasingly popular trend, almost two third of sponsors (63%) offer lifestyle funds this year – up from 9% in 1995.

The average number of funds offered in 1995 was six while the average this year is 14, Hewitt said.

The number of employers involved in the study has gone from 434 in 1995 to 458 this year. Total assets went from $89 billion in 1995 to $264 billion in 2005, with the average number of employees jumping from 13,687 in 1995 to 14,183 this year.