Nearly Half of Employers Now Auto-Enroll Employees in 401(k) Plans, Watson Wyatt Survey Finds
September 23 2009 - 11:00AM
PR Newswire (US)
WASHINGTON, Sept. 23 /PRNewswire-FirstCall/ -- In a trend that is
likely to continue, nearly half of U.S. companies are automatically
enrolling workers into 401(k) plans to encourage them to save for
retirement, according to a survey by Watson Wyatt, a leading global
consulting firm. The survey also found that the number of companies
that use target-date or lifecycle funds as their default investment
option has increased sharply in the last few years. "Employees need
to participate more effectively in their company defined
contribution plan as this is increasingly the primary vehicle they
use to save for retirement," said Chris DeMeo, senior investment
consultant at Watson Wyatt. "Taking an interest and actively
participating in their plans will allow employees to make more
informed decisions and develop investment strategies that take into
account their goals and risk profiles." The survey found that
nearly half of surveyed companies (47 percent) now auto-enroll
their employees into their defined contribution (DC) plan.
Additionally, one-third of those that do not currently auto-enroll
are considering it. Watson Wyatt's survey was conducted in March
and April 2009, and includes responses from 149 mainly large
companies, representing a total of more than 2 million employees
across a broad range of industry sectors. Nearly all companies (96
percent) have a default investment option. The number of companies
using lifecycle or target-date funds as their default investment
option has increased significantly, from 38 percent in 2006* to 62
percent today. More than 10 percent still offer stable value and
money market funds as their default, despite Department of Labor
(DOL) regulations issued in 2007 that stated that these options
would not be given fiduciary protection. Plan sponsors that
auto-enroll their employees use a median initial contribution rate
of 3 percent, with a range from 1 percent to 7 percent. Slightly
more than half (51 percent) of the plan sponsors that auto-enroll
also automatically increase the contribution rate by a certain
amount each year for their participants. The final contribution
rate is between 3 percent and 20 percent, with a median rate of 6
percent. "While plan sponsors have made progress towards
encouraging greater participation, saving and educated decision
making, there is still room for improvement," said Robyn Credico,
senior retirement consultant at Watson Wyatt. "Designing the
optimum plan is tricky and requires plan sponsors to juggle many
factors including overall plan design, investment, communication
and governance. However, the potential upside is great and could
cause DC plans to emerge stronger from the current economic
crisis." Other findings include: -- Having 10 to 14 investment fund
options is most common, but 11 percent of employers offer 25 or
more. -- Thirty-eight percent of employers offer company stock as
an investment option. -- Investment fees vary considerably. Most
funds (57 percent) have an average investment fund expense between
0.50 percent and 0.84 percent. Larger DC plans tend to pay lower
investment fund fees compared with smaller DC plans. Twenty-one
percent of the DC plans with less than $100 million in assets have
an average investment fund expense of 0.85 percent to 1.24 percent,
while only 3 percent of DC plans with $1 billion or more in assets
have an average investment fund expense in that range. The survey
did not address whether funds are actively or passively managed. --
Twenty-two percent of plans saw a decrease in recordkeeping fee
rates from 2007 to 2008, while 31 percent of plans with more than
$1 billion in assets saw a decrease. For more information, please
visit: http://www.watsonwyatt.com/dctrends. * This finding is from
Watson Wyatt's Survey on Default Investments and the DOL Proposed
Regulations (December 2006) About Watson Wyatt Watson Wyatt
(NYSE:WWNASDAQ:WW) is the trusted business partner to the world's
leading organizations on people and financial issues. The firm's
global services include: managing the cost and effectiveness of
employee benefit programs; developing attraction, retention and
reward strategies; advising pension plan sponsors and other
institutions on optimal investment strategies; providing strategic
and financial advice to insurance and financial services companies;
and delivering related technology, outsourcing and data services.
Watson Wyatt has 7,700 associates in 33 countries and is located on
the Web at http://www.watsonwyatt.com/. DATASOURCE: Watson Wyatt
CONTACT: Ed Emerman, +1-609-275-5162, , for Watson Wyatt; or Steve
Arnoff of Watson Wyatt, +1-703-258-7634, Web Site:
http://www.watsonwyatt.com/
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