February 4, 2005 11:16 AM
Automatic 401(k) Enrollments May Lasso Lackadaisical Savers
Excerpt: Nearly half say they are likely to automate certain features in their 401(k) plans as a way to increase participation this year. In 2003 and 2001, 14% of employers had some type of automatic feature in their retirement plans, according to the benefits consulting firm, which polled about 200 large companies last fall.
Concerned that workers haven't saved enough for their golden years, companies are ramping up efforts to put workers' retirement plans on autopilot.
Employers say one of their biggest priorities for 2005 is to provide employees with more information and customized projections of how much money is needed to meet their retirement goals, according to a recent study by Hewitt Associates in Lincolnshire, Ill. But for some employers, simply touting the importance of saving for retirement isn't enough.
Nearly half say they are likely to automate certain features in their 401(k) plans as a way to increase participation this year. In 2003 and 2001, 14% of employers had some type of automatic feature in their retirement plans, according to the benefits consulting firm, which polled about 200 large companies last fall.
Among the features being considered by companies this year are automatic enrollment, rebalancing and increases in contributions. For example, a company with an automatic-enrollment system would have new hires automatically signed up for the company's 401(k), typically into a conservative fund with an initial annual contribution rate of 3% coming out of workers' paychecks. Workers would be able to opt out of the plan. With automatic contributions, participants could elect to have their contributions increased each year until a target rate is reached. And with automatic rebalancing, workers would see their asset allocations rebalanced to match their target investment mix on a periodic basis.
The automation push stems from a letter released by the Internal Revenue Service last year that gave additional guidance around employers' use of automatic enrollment and contribution increases, says Lori Lucas, Hewitt's director of participant research. It was a "message from the IRS that automatic enrollment is acceptable," Ms. Lucas says.
The drive to get workers to participate in and contribute more to their 401(k) plans is part of the companies' effort to move away from traditional pensions. Employers' fears that workers haven't thought enough about their retirement are another reason. Only 18% of large employers are confident their employees will leave the work force with enough money to retire on, the study found. And only 12% believe their workers even understand their retirement benefits and are taking care of their futures.
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