Today in Finance for April 8, 2005

401(k) Participation Holds at 73 Percent

Companies look into automatic and ''easy'' enrollment approaches to encourage more employees to take part.

Stephen Taub
CFO.com | US

April 8, 2005

More than one-quarter of employees at companies with a 401(k) plan have chosen not to participate, according to a new survey by Deloitte Consulting.

Specifically, plan participation by employees at 426 responding plan sponsors in 2004 was at 73 percent, holding steady for the third year straight. The companies surveyed had an average workforce of 12,000, though 31 percent of the companies had between 1,001 and 5,000 employees. Results of the survey may be skewed by the participation of a few very large employers, the consultancy noted.

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Companies think automation is one development that could boost participation.

According to the survey, 15 percent of the respondents offer automatic enrollment; another 13 percent are considering adding this feature.

Another automation technique employers are considering is automatic fund rebalancing. The number of providers offering automatic fund rebalancing increased 11 percentage points over the past year, from 24 percent in 2003 to 35 percent in 2004.

Consistent with the trend, the survey also found that more than half of last year's employees said automatic fund rebalancing wasn't available through their provider, compared with only 36 percent this year.

Another increasingly popular approach to encourage new participants is "easy enrollment." Under this practice, a simple, postage-paid postcard is sent to new employees and to employees who aren't contributing. After signing the card and returning it, the employees are automatically contributing to the plan — typically at a 3 percent rate into a fixed-income fund.

Nearly 10 percent of the responding plan sponsors reported having an "easy enrollment" feature, while another 9 percent said they are considering adding one.

"Our benchmarking survey shows that automated and easy enrollment options are a high-priority service enhancement, thus furthering the trend for employers to make it easier for participants to enroll in 401(k) plans and manage their own portfolios," said Deloitte director Leslie V. Smith.

Meanwhile, fewer companies are requiring their new hires to wait for a period of time before being invited into their plans, and at companies that still have a waiting period, the wait is shorter.

For example, more than 45 percent of respondents indicated that their plans allow for "immediate" entry, up slightly from 43 percent last year. Another 31 percent require employees to wait as much as three months before being allowed to participate, according to the survey.

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