A 401(k) Automatic Enrollment Snapshot

Employers are changing their policies, but more workers aren't necessarily saving.


A 2006 law that made it easier for companies to automatically enroll employees in 401(k) plans went into effect late last year. And, indeed, employers have changed their retirement offerings.

A new online survey of 436 plan sponsors by Deloitte, the International Foundation of Employee Benefit Plans, and the International Society of Certified Employee Benefit Specialists offers a snapshot of current 401(k) participation.

Some 42 percent of the plans surveyed now have an automatic enrollment feature, nearly double the 23 percent that did in 2005. Typically, only new hires are automatically enrolled and most companies (57 percent) allow 30 to 59 days to opt out of automatic enrollment. The default rate withheld from paychecks is 3 percent at two thirds of the companies surveyed, and 35 percent of the businesses offer a step-up provision that automatically increases deferral percentages. Fund expense fees (as a percentage of fund assets) reported in the survey average 0.63 percent.

Lifecycle target retirement date funds emerged as the top choice for automatically enrolled dollars, with 63 percent of companies using them as the default investment option. Other popular default investments were balanced funds (15 percent), lifestyle funds (9 percent), and principal preservation/short-term funds like stable value and money market funds (8 percent). The average number of funds offered was 17, and 24 percent of the plans offered more than 20 funds.

Only 23 percent of the companies surveyed allow employees to contribute to a Roth 401(k), up from 12 percent in 2005. Another 10 percent of employers plan to add a Roth 401(k) option in the future.

Despite efforts on the part of employers to automatically enroll workers in 401(k) plans, average participation rates in 401(k)'s are holding steady at around 76 percent, Deloitte found, virtually unchanged from 75 percent in 2005.

Tell us, are you agreeable to being automatically enrolled in a 401(k) plan?