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Employers Offering 401(k) Match Are Back to Pre-Crisis Levels
Automatic enrollment/escalation and participant advice hit new highs

By Stephen Miller, CEBS  9/4/2012

The number of U.S. companies offering a 401(k) match is back to 2008 “pre-financial crisis” levels, when many firms were forced to eliminate the match, according to an analysis by financial services firm Charles Schwab.

In addition, a growing number of employers are providing their employees with 401(k) plan features to help drive plan participation and encourage savings, according to Charles Schwab Retirement Plan Services, a Schwab division that administers 401(k) plans covering approximately 1.5 million retirement plan participants.

In 2011, the last full year for which data was available on plans managed by Schwab, the analysis found that:

73 percent of employers provided a 401(k) matching contribution, up from 68 percent in 2010.

83 percent of employers made 401(k) advice available to plan participants, up from just 42 percent in 2005.

42 percent of employers automatically enrolled employees into their 401(k) plan, up dramatically from just 5 percent in 2005. At companies with more than 2,500 employees in the plan, 58 percent used automatic enrollment.

40 percent of employers that use auto enrollment also automatically increased participants' savings deferral rates (typically raising salary deferrals by 1 percent or more annually), up from 14 percent in 2006, and up from 36 percent in 2010.

Feature Adoption Rates

 

2005

2006

2007

2008

2009

2010

2011

Employer match

73%

76%

75%

72%

67%

68%

73%

Participant advice

42%

56%

58%

62%

70%

80%

83%

Automatic enrollment

5%

14%

24%

33%

35%

39%

42%

Automatic enrollment and automatic savings rate escalation

N/A

14%

24%

30%

35%

36%

40%

Source: Charles Schwab Retirement Plan Services.

Once Enrolled, They Stay Enrolled

“Some employers have been reluctant to implement automatic features out of concern that their employees would react negatively, but the facts don’t support that concern,” said Steve Anderson, senior vice president of Schwab Retirement Plan Services, in a media statement. "Last year, 92 percent of employees who were automatically enrolled in their plan stayed enrolled and continued to save, and 82 percent of employees placed in an automatic savings increase program stayed with that program,” he noted.

In addition, Anderson suggested that the increase in employers offering 401(k) investment advice to participants "possibly reflects a ‘lessons learned’ from the financial crisis, when many 401(k) participants panicked because they didn’t have enough professional guidance."

Growing Bigger Retirement Nest Eggs

 

There is hope that Americans will be better prepared for retirement, thanks to automatic features offered through 401(k) and other employer-sponsored defined contribution plans, according to Retirement Plan Communication in an Auto Features World, a study report from benefits provider Lincoln Financial Group and Retirement Made Simpler, a coalition to support employers who want to help their employees save more for retirement.

 

The survey, fielded from Feb. 8 to March 8, 2012, with responses from executives responsible for managing 401(k) and 403(b) retirement plans with assets of $10 million or more, revealed how automatic features had improved employee retirement readiness, showing that:

85 percent of plan sponsors reported that automatic features were especially effective in helping participants who consider themselves less educated on retirement matters.

 

Plans with automatic escalation experienced average deferral rates of 8 percent or higher compared to the average deferral rates of 4 percent or less for the majority of plans, according to separate research by the not-for-profit Plan Sponsor Council of America.

 

97 percent of plan sponsors who adopted automatic enrollment with annual auto escalation said the advantages outweighed any perceived disadvantages.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

Related Articles:

Auto Features Impact Communication, SHRM Online Benefits Discipline, July 2012

401(k) Match: Higher 'Thresholds' Drive Participation, SHRM Online Benefits Discipline, July 2012

Encourage Employees to Defer Adequate Pay to 401(k)s, SHRM Online Benefits Discipline, May 2012

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SHRM Online Retirement Plans Resource Page

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