Published January 19, 2009
2009 401(K) PLAN ADMINISTRATORS
Defined-contribution plan participants have been exposed to more financial
market risk by the increased use of target-date fund strategies as default
investment options and away from more secure investments, according to a study
by Greenwich Associates.
According to the report, "U.S. Defined
Contribution Pension Plan Research Study," from 2007 to 2008 the share of plan
sponsors using money-market or stable-value funds as their default investment
option dropped to 19 percent from 35 percent, while the share of plans using
target retirement date funds jumped to 53 percent from 35 percent.
Analysts at Greenwich reported that a large
number of employees took on exposure to financial markets in general and to
equity markets in particular virtually on the eve of the biggest market collapse
in 70 years, a news release about the study said.
The move by plan sponsors to automatic
enrollment has exacerbated this trend, the study noted, as more than 40 percent
of large plans and 50 percent of small plans have implemented automatic
enrollment.
The study also reported the proportion of large
DC plan sponsors offering matching contributions declined slightly to 92 percent
in 2008 from 94 percent in 2007. Consultants at Greenwich are advising companies
to make every effort to maintain their matching contributions and to cut or
eliminate them only as a last option.
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