New data shows a clear correlation between employer matches for 401(k) plans and employee participation rates. The Impact of Economic Conditions on 401(k) and Profit Sharing Plans survey from the Profit Sharing/401k Council of America (PSCA), which looked at the 2008-2009 experience of 508 plan sponsors, found that:
• 72.9 percent of U.S. companies that suspended their match in 2008 and 2009 experienced a decrease in plan participation vs. only 14.4 percent of those companies that maintained matching contributions.
• Additionally, 17.9 percent of companies that did not change their match experienced an increase in plan participation.
A significant portion of companies that experienced an increase in participation, as well as those that maintained participation levels, said that it was a result of automatic enrollment. Despite the tumultuous economic times, new hires who were enrolled automatically did not opt out at higher rates than they had previously.
Strong Employer Commitment to Plans
Companies and participants remained committed to their retirement plans in 2008 and 2009, the not-for-profit PSCA found. Overall, plan sponsors maintained company contributions, stepped up employee education efforts and re-evaluated plan design features to make plan participation more beneficial for employees. According to the PSCA survey:
• More than three-fourths of plan sponsors continued their matching company contributions (76.8 percent).
• Almost three-fourths continued their non-matching company contributions (73.2 percent).
• The majority of participants continued to participate in their employer’s plan and maintained deferral levels.
More plan sponsors suspended or reduced non-matching company contributions than matching contributions, and more large companies (those with more than 5,000 participants) than small companies suspended contributions. Of companies that suspended matching contributions, almost half (46.7 percent) restored the match in 2009 or planned to restore it within the first quarter of 2010, with more large companies (52.7 percent) doing so.
Although some plan sponsors were forced to suspend company contributions in the wake of economic pressures and less revenue, most were not. In fact, 4.7 percent of companies increased their matching contributions.
Communication and Education
Overwhelmingly, plan sponsors stepped up to help their participants understand market volatility, with 54.3 percent increasing their employee education efforts. “It is impressive that companies not only stepped up their support of participants while facing fewer resources, but they evaluated the specific needs of their employees and customized their support to meet those needs,” according to the PSCA report.
|
Plan-Related Actions Taken as a Result of Economic Conditions, 2008-2009 |
|
|
Company Size (# of participants) |
|
|
1-49 |
50-199 |
200-999 |
1,000-4,999 |
5,000+ |
|
Changed the investment lineup |
19.2% |
19.0% |
27.1% |
17.5% |
16.9% |
|
Increased employee education |
35.6% |
49.4% |
57.3% |
53.1% |
65.9% |
|
Added investment advice |
8.2% |
15.2% |
9.4% |
5.3% |
10.9% |
|
Delayed planned design changes |
6.8% |
6.4% |
6.3% |
11.4% |
13.8% |
|
Hired an investment consultant |
2.7% |
5.1% |
4.2% |
1.8% |
4.4% |
|
Other |
5.7% |
6.3% |
11.5% |
17.4% |
10.9% |
|
Source: Profit Sharing/401k Council of America. |
Other actions taken included:
• Adding automatic enrollment and/or automatic escalation.
• Adding target-date funds.
• Adding hardship withdrawal provisions.
• Allowing in-service distributions to employees over age 59 and a half.
• Changed fixed match to discretionary.
• Provided on-site market volatility training.
• Evaluating loan structure (increasing or decreasing number of loans outstanding at one time).
• Re-evaluating investment fund offerings for the future; closing volatile funds to new money.
• Changing or consolidating vendors.
• Performing a fiduciary audit.
Stephen Miller is an online editor/manager for SHRM.
Related Article:
More Companies Plan to Unfreeze Salaries and Restore 401(k) Matches, SHRM Online Compensation Discipline, November 2009
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