Many companies have reduced or suspended their 401(k) match since September 2008. Among the 18 percent of firms that slimmed their 401(k) match, slightly less than half (49 percent) have restored company contributions, according to a Towers Watson survey of 334 companies with 1,000 or more employees released today. Almost all of the companies, however, say they are considering reinstating all or a portion of employer contributions within the next 12 months.
Among firms that have reinstated the match, the majority restored it to the previous level. But some companies resumed a smaller match or now fluctuate the match based on company performance. “While some companies will reinstate their previous matching formula others may tie all or part of the match to profits,” says Alec Dike, senior retirement consultant at Towers Watson. “In this way, companies can be transparent about the need to connect the match with performance as well as offer the potential for increased contributions when times are good to balance reduced matches when times are not.”
While not all the large employers are contributing to retirement accounts, firms are increasingly likely to automatically sign up workers for the retirement plan. Some 57 percent of the companies surveyed now automatically enroll employees in their 401(k) plan. Most of the employers sign up only new employees (39 percent), but 18 percent of the companies enroll all workers in retirement accounts. Only a small fraction of employees opt out of automatic enrollment. At 85 percent of the companies surveyed fewer than 10 percent of employees chose not to participate.
Automatically enrolled employees are typically invested in target-date funds. Employees at 72 percent of the companies with automatic enrollment found themselves invested in a target-date or life cycle fund. Another 13 percent of companies used balanced or lifestyle funds as the default investment.
Many employers are considering offering workers the option of converting their 401(k) balance into annuity payments upon retirement. While only about 18 percent of 401(k) plans currently offer annuities, another 30 percent of employers are considering adding an annuity feature. Annuities have so far proven an unpopular choice among employees. Among employers offering an annuity, most companies (79 percent) report that only 5 percent or fewer workers choose this lifetime income option.