The survey of 350 employers showed a near 70% increase over the last year in the percentage of plans that automatically enroll new employees in 401(k) or other defined contribution plans (44% in 2007 versus 26% in 2006). About 20% of these plans also automatically increase the employee’s contribution rate over time.
In terms of the types of funds plans are choosing for automatic enrollment, the number of them using stable value or money market funds fell significantly (from 61% to 39%), while target-date or target-risk funds gained popularity (from 14% in 2006 to 39% in 2007).
Forty-two percent of employers plan to change their default investments in the next 18 months, with most (71%) shifting from conservative funds to target-date funds (66%) or target-risk funds (20%).
Employers said getting employees to participate (28%) and participants’ lack of investment knowledge (22%) are the two greatest challenges for 401(k) plans.