Company Match No Help in Retaining Auto Enrolled Employees

Employers who have turned to auto enrollment to boost 401(k) participation should not rely too heavily on their company match to help keep employees from opting out.

That was the key conclusion of the study “The Impact Of Employer Matching On Savings Plan Participation Under Automatic Enrollment” by researchers James J. Choi of Yale University and John Beshears, David Laibson and Brigitte C. Madrian of Harvard University. The research was performed for the National Bureau of Economic Research (NBER).

“The success of automatic enrollment at increasing participation in employer-sponsored savings plans does not appear to rely much on having an employer match,” the university researchers wrote. “…automatic enrollment participation rates are positively related to match generosity, but the magnitude of this effect is modest.”

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The four researchers explained that they wanted to see what effect changes in a plan sponsor’s matching contribution would have on the number of employees who took the option to back out of an auto-enrolled plan.

Choi, Beshears, Laibson and Madrian studied the issue in two settings:

  • an unidentified “large firm” referred to only as “Company A’ that had adopted auto enrollment. The employer dropped its 25% on the first 4% of pay match and started a non-contingent contribution of 4% of pay plus an annual profit-sharing contribution that did not depend on the employee’s contributions.
  • pooled data from nine auto-enrolled firms.

According to the study, among new hires with six months of tenure in the firm that went from a match to a non-contingent contribution, participation rates decreased by at most 5% to 6% after the firm eliminated the match and overall average employee contribution rates fell by 0.65% of pay.

Among the nine firms, decreasing the match amount by 1% of pay was associated with a 1.8% to 3.8% decrease in participation rate at six months of eligibility, the researchers found.

“Collectively, these results imply that moving from a typical matching structure of 50% on the first 6% of pay contributed to no match at all would reduce savings plan participation under automatic enrollment by 5 to 11 percentage points,’ the study said. “In this specification, decreasing the maximum employer match by 1% of salary is associated with a plan participation reduction at six months of eligibility under automatic enrollment of 2.8 percentage points.’

More information about ordering a copy of the full study is here.

Janus Twenty Fund to Change Skippers

Janus Capital Group Inc. has announced that Scott Schoelzel, portfolio manager of Janus Twenty Fund, will leave the firm at the end of 2007.
Schoelzel, who also manages Janus Adviser Forty Fund, Janus Aspen Forty Portfolio and related products for retail and institutional clients and non-US investors, and who recently celebrated his 10th anniversary at the helm of Janus Twenty Fund, will take some time off before deciding his future plans. He has been with Janus 14 years.
Janus CEO Gary Black said Schoelzel has made significant contributions to the company’s success during his 14 years with Janus and that he’ll leave a lasting impression on the firm. “Scott has had a stellar investment career. His 10-year track record on Janus Twenty distinguishes him as one of the premier investors in our industry,’ Black said. “We appreciate his commitment to Janus and wish him well in the next chapter of his life.’

According to a press release, between now and year’s end, Schoelzel will begin transitioning the funds to his successor, Ron Sachs, who currently manages Janus Orion Fund and other related portfolios.

Since Schoelzel became Janus Twenty Fund portfolio manager in August 1997, the fund has ranked in the 2nd percentile (4 out of 215) of its Large-Cap Growth Lipper peers on a total-return basis as of July 31, 2007. According to a press release, for the same 1-, 3-, 5- and 10-year periods, Janus Twenty Fund has ranked in the 10th, 1st, 1st and 2nd percentiles (68 out of 720, 2 out of 614, 2 out of 501, 4 out of 205) of its Lipper peers, respectively, based on total returns.

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Sachs will step down as Janus Orion portfolio manager, which he has managed since its June 2000 inception, and its related portfolios and assume responsibility for Janus Twenty Fund, Janus Adviser Forty Fund, Janus Aspen Forty Portfolio, Janus Capital Funds plc – Janus US Twenty Fund, and accounts in the Institutional Concentrated Growth discipline.
Sachs will be succeeded by John Eisinger, a Janus equity research analyst and contributor on Janus Research Fund.

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