Fidelity Examines Impact of Pension Protection Act

Fidelity looked at the impact of the Pension Protection Act of 2006 (PPA) on 401(k) plan design and participant savings behaviors. The findings show the percentage of plans defaulting participants into age-based lifecycle funds has soared to 73% from just 11%.

Since 2006, Fidelity plans that offer auto-enrollment have grown to 21%, up from just 2% five years prior. Among the largest plans of more than 50,000 participants, 63% offer the plan design feature. Of Fidelity’s 401(k) participants, more than half (51%) are now in plans offering the feature, and it’s boosting participation.

The average participation rate for eligible employees in plans without auto enrollment is 55%. However, the rate for eligible employees in plans with it jumps to 82%. Auto enrollment is also having an effect on younger, eligible employees age 20 to 24 where the participation rate is 76% in plans with auto enrollment but only 20% in those plans without it.

The PPA allows plan sponsors to offer Roth 401(k) deferrals in workplace retirement plans. Since 2006 the number of plans offering Roth 401(k)s has grown to 31% from 4%, and today nearly half of all 401(k) participants are in plans that offer the feature. Even though participant usage of Roth 401(k)s remains low, it has doubled to approximately 6%, up from only 3% five years ago. Gen Y investors have adopted Roth 401(k)s enthusiastically, at 9% overall.