Employers are increasingly taking bolder actions to help ensure that participants achieve greater financial security through 401(k) and other defined contribution retirement plans, according to a 2013 survey by consultancy Aon Hewitt. The survey report, 2013 Trends & Experience in Defined Contribution Plans, reveals that organizations are doing the following:
- Boosting the employer match. For the first time in the study's 20-year history, the most common 401(k) match by employers increased. The most common match is now $1 per $1 on the first 6 percent of employee deferrals, with 19 percent of employers reporting this formula, up from 10 percent in 2011. Previously, a match of $0.50 per $1 on the first 6 percent was the most popular.
Overall, nearly all businesses (98 percent) provide some sort of employer contribution to the plan. Almost three-quarters of employees save at a level equal to or above the company-match threshold. "Increasing the amount employers are willing to contribute may help encourage those employees to save at more robust rates," according to the report's analysis.
- Relaxing eligibility rules. Employers have drastically relaxed their eligibility requirements for 401(k)s and similar plans over the past decade. Seventy-six percent of defined contribution plans now allow workers to begin making pretax contributions immediately after being hired, up from 71 percent in 2011. Just 45 percent of organizations allowed for day-one contributions in 2001.
In addition, 53 percent of plans have corresponding immediate eligibility for employer-matching contributions, while 50 percent of plans that offer a nonmatching employer contribution allow immediate eligibility.
- Broadening Roth availability. Over the past six years the percentage of employers that allow Roth contributions has increased from 11 percent to 50 percent, recognizing that individuals have different tax situations. When a Roth option is available, 27 percent of plans also permit in-plan Roth rollovers/conversions. Another 16 percent of companies are planning to add the feature within the next 12 months.
- Simplifying investment choices. Two-thirds of all plans use a tiered structure to communicate investment options to their participants. The number of investment options offered has leveled out, with relatively few sponsors expressing interest in further expanding the fund lineup.
Target-date funds, which automatically shift assets toward more conservative holdings as the specified retirement year nears, are now offered by 86 percent of plan sponsors.
- Improving plan default elections. Solutions that automate the savings process for participants continue to be broadly adopted, but there remains opportunity for improvement. For example, 59 percent of plans use automatic enrollment—however, more than half of these plan sponsors set the default savings rate below the plan’s match threshold. Such an approach tends to result in higher participation levels, but lower overall savings levels.
- Offering savings education and advice. More employers are offering outside investment help to employees. Three out of four plan sponsors now offer access to one or more of the following: one-on-one financial counseling (59 percent of respondents), online guidance and tools (55 percent), and/or professionally managed accounts (52 percent).
The largest increase came in the number of employers providing professionally managed accounts; just 29 percent did so in 2011.
"Different segments of the workforce prefer various forms of help,” said Rob Austin, director of retirement research at Aon Hewitt, in media release. “Some prefer to simply hand over the keys to their retirement savings to someone else—hence, the growing popularity of managed accounts—but a large percentage of employees prefer to take a more hands-on approach to directing their investments."
The consultancy surveyed more than 400 U.S. plan sponsors, representing 10 million-plus employees, in plans that total $500 billion in retirement assets. For 77 percent of employers surveyed, defined contribution plans are the primary source of retirement income for their employees. When asked how they measure the success of their plans, employers' top responses were "facilitates adequate retirement income" (18 percent) and "high participation rate" (17 percent).
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Related SHRM Articles:
401(k) Plans Adopt Participant-Friendly Features, SHRM Online Benefits, September 2013
Message to Employees: Saving 1% More Will Boost Retirement Income, SHRM Online Benefits, August 2013
Roth 401(k) Use and Savings Rates Up Among Young, SHRM Online Benefits, July 2013
How Match Thresholds and Default Rates Impact Savings, SHRM Online Benefits, May 2013
Changes in 401(k) Plans Spur Higher Participation, SHRM Online Benefits, October 2012
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