US - More workers are enrolling in 401(k) plans and investing their money more wisely, but companies must take further action for such plans to continue to play a crucial role in retirement savings, a Hewitt Associates study has found.
Hewitt’s annual study of over 2.6 million employees eligible for 401(k) plans found approximately 36% of workers with less than one year of tenure participated in a 401(k) plan in 2005, up 6 percentage points from the previous year.
For companies that offered automatic enrolment, the overall employee participation rate was 14 percentage points higher than the overall employee participation rate across all companies.
The study also highlighted improvements in overall employee behaviour around diversification, company stock and the use of lifestyle funds, but Hewitt retirement research director Lori Lucas (pictured) stressed companies still had “a lot more work to do.”
Average 401(k) plan balances in 2005 grew more than 10% to nearly $76 000, but median plan balances were much lower than the average at only $27 100.
One-third (32.8 percent) of employees did not participate in their 401(k) plan, and contribution rates remained steady at approximately 8%.
Of those employees who did participate, approximately one in five did not contribute enough to obtain the full company match, and just 30% contributed only enough to obtain the match.
More companies had to take “aggressive steps” to encourage employees to participate and contribute to the 401(k) plan, stressed Lucas.
In terms of demographics, younger, lower-tenured and lower-salaried workers were most likely to contribute in a nominal way. although automatic enrolment was achieving a marked improvement among the group.
“Companies that automatically enroll new hires are seeing a big difference in the behaviour of lower-tenure workers in 401(k) plans,” said Lucas. “But to make an impact on overall participation and contribution levels, companies need to be thinking about offering automatic enrolment to all employees, or combining it with tools like streamlined enrolment and targeted communication.”
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