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Offering Investment Advice is More the Norm at 401(k)s
Half of employers now offer workers outside investment advisory
services, including advice, guidance, and/or managed accounts,
according to Hewitt Associates.
That’s up from 40% in 2007 and 37% in 2005. Furthermore, nearly three in 10 401(k) plans (29%) offer one-on-one financial counseling and 28% offer online guidance, compared to 22% and 18%, respectively, two years ago, according to the results of the Hewitt survey of more than 300 companies.
More than a quarter of retirement plans now offer managed accounts, up from 11% in 2007.
Auto Features on the Rise
In addition to investment advice, more 401(k) plans are adopting automatic enrollment, which jumped from 34% in 2007 to 58% in 2009. In addition, Hewitt found that 69% of the programs using automatic enrollment default workers into a target-date fund, up from 50% in 2007.
Now more than three-quarters (78%) of respondents offer target-date portfolios, up from 58% in 2007 and 28% in 2005.
The number of employers defaulting employees into contribution rates at 3% or higher increased from 83% in 2007 to 89% in 2009.
The survey found the number of companies offering automatic contribution escalation also increased to 44% in 2009, up from 35% in 2007 and almost five times higher than in 2005 (9%). Further, 47% offer automatic rebalancing, compared to 26% in 2005.
Moving Beyond Enrollment
Hewitt researchers said the numbers are
part of the general industry trend that has moved beyond simply getting
people into the plan to trying to encourage participants to save enough
to last through their retirement years. Fund performance and plan fees
also continue to be top of mind for sponsors, Hewitt asserted.
"Over
the past decade, design changes in 401(k) plans have generated many
positive improvements in certain employee investment behaviors and
participation rates, but there's still work to do," said Pamela Hess,
Hewitt's director of retirement research. "Companies need to be focused
not only on getting workers to save, but getting them to save at levels
that put them closer to meeting their retirement goals. This means
reviewing appropriate default contribution rates and investment funds,
and considering coupling automatic enrollment with other automated
tools, targeted education and resources that force employees to save
and invest more wisely."
Monitoring Plan Fees
According
to Hewitt, 84% of employers have attempted to calculate the total cost
of maintaining their 401(k) plan—up from 60% in 2007 and only 29% in
2001. Almost three-quarters of employers (74%) have made efforts to
reduce expenses, up from 57% in 2007. These efforts include negotiating
with their current service provider to reduce fees (66%), swapping out
funds for lower cost alternatives (51%), and working with fund managers
for alternative pricing through collective trusts and separate accounts
(18 %).
Some 59% ranked investment fees/expense ratios as one of
the most important factors in selecting investment options for their
401(k) plans.
The survey also found that fee disclosure is
becoming an increasing priority. Most plan sponsor respondents
proactively disclose administrative fees to participants. Just 18% of
plans disclose administrative fees only on a participant's request,
versus 28% from two years ago.
Match Contributions
The
Hewitt Associates survey found that 10% of companies temporarily
suspended their employer matching contributions over the past two
years. An additional 10% stopped making nonmatching profit sharing
contributions (7%) and discretionary nonmatching contributions (3%).
Most
surveyed plans (93%) offer some type of employer contribution to the
401(k) plan. The majority (65%) offer a fixed match, most commonly 100%
of employee contributions up to 6% of pay.
In plans with a
match, workers receive an employer match earlier than before: 56% of
plans do not have any service requirements for participants to receive
employer matching contributions, up from 44% in 2007.
Company
stock is less popular: 17% of employers invest the employer matching
contribution exclusively in company stock, down from 23% in 2007 and
45% in 2001.
Employers are providing workers with earlier access
to 401(k) plans. In 2009, 74% of plans did not have a service
requirement for participation in a 401(k) plan, up from 61% in 2007.
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