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Despite Rise of Auto-Enrollment, 401(k) Participation Rates Stall

Enrollment rate for the defined-contribution plans is stuck at around 76 percent. The marginal increase in participation, oddly, occurred during a time when the number of companies automatically enrolling workers in 401(k) plans nearly doubled.

July 24, 2008
Related Topics: Retirement/Pensions, Workforce Planning, Latest News
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Automatic enrollment was supposed to be the killer app to help employers painlessly increase participation rates in their 401(k) plans. And while that may prove to be the case over the long term, one thing is becoming quite clear right now: Automatic enrollment clearly doesn’t mean automatic results.

Despite the best efforts of many plan sponsors, participation rates in a survey of more than 400 corporate plan sponsors remained basically the same over the past two years—on average, 76 percent of employees now participate in their company’s 401(k) plan, according to a new study by Deloitte Consulting.

That’s just a slight uptick from Deloitte’s 2006 survey, which found that three-quarters of workers were enrolled in their employers’ 401(k) plans.

The marginal increase in participation rates, oddly, occurred during a time in which the number of companies automatically enrolling workers in 401(k) plans nearly doubled. About 42 percent of the plan sponsors polled by Deloitte have an automatic-enrollment feature now, compared with 23 percent two years ago.

There may be a simple explanation, however, for these seemingly contradictory results. The vast majority—roughly 66 percent—of companies that automatically enroll their workers in 401(k) plans are doing so only for new hires.

Less than a third of companies enroll their entire workforce when they add the auto-enroll feature.

Mark Dzierzak, senior manager with Deloitte Consulting, said the participation rates may also lag behind the auto-enrollment adoption figures. Some companies, he explained, may have added auto-enrollment in the past few months, so their participation rates may not have budged much yet.

At the same time, some workers opt out of a 401(k) plan when they are enrolled. Turnover can have an impact on participation rates too, Dzierzak added.

“There will be a major increase in participation rates at some point in the near future,” he said. “Just how much is unclear, but it is clear that employers believe automatic enrollment will be successful.”

Filed by Mark Bruno of Financial Week, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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