Employers Choose Safer Default 401(k) Investments

Companies are tinkering with their 401(k) investment options.

By + More

More employers are opting for low risk default 401(k) investments, rather than funds with a mix of stocks, bonds, and cash, a new survey found. The proportion of private sector companies using balanced, target-date, or life cycle funds as the default 401(k) investment declined from 53 percent in 2008 to 40 in 2008, according to a Harris Interactive survey of 601 employers underwritten by the Transamerica Center for Retirement Studies. Use of more conservative default investments including money market and stable value funds increased from 12 percent in 2008 to 33 percent in 2009. Small companies with fewer than 500 employees were particularly likely to have recently selected a more conservative default investment.

[See 10 Things Retirees are Doing Without.]

Almost half (48 percent) of employers tinkered with their 401(k) investment options in 2009 and a quarter added a Roth 401(k) option. Just over a quarter of the employers in the survey automatically enroll new workers in a 401(k) plan. The median default contribution rate is 3 percent.

[See 15 Ways to Tell if You Are Ready to Retire.]

Fewer employers are matching 401(k) contributions. The proportion of companies providing a 401(k) match declined from a peak of 80 percent in 2007 to 69 percent in 2009. Over a quarter of the companies (28 percent) have decreased employer 401(k) contributions in the past year and 23 percent changed the form of the match. Companies with 500 or more employees were more likely than smaller companies to decrease the match. But many companies plan to resume their 401(k) match soon. About 21 percent of the employers say they will increase company contributions to retirement accounts within the next 12 months.

[See 7 Ways to Protect Your Retirement Savings.]

Most employers remain unconvinced that workers will be able to save enough money to retire. About three quarters (73 percent) of the companies surveyed say employees could work until age 65 and still not save enough to meet their retirement needs. Only about half of the employers (53 percent) are confident that workers will have a comfortable lifestyle in retirement.