9 Retirement Benefit Changes Coming in 2011

Here is how employers are planning to tweak their 401(k) plans this year.

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Many employers are planning to tweak their retirement benefits this year. Nearly 70 percent of firms plan to review their 401(k) and pension programs and potentially make changes in 2011, according to an Aon Hewitt survey of 210 companies employing 6.2 million workers. Here is how employers are likely to alter their retirement benefits this year.

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Automatic 401(k) features. The most commonly offered retirement benefit is a 401(k) or similar type of tax-favored retirement account (94 percent). And most companies are increasingly automating how workers save and invest in the plan. Over half (57 percent) of the employers surveyed automatically sign up new workers for the 401(k) and another 13 percent plan to implement automatic enrollment this year. Many companies are also planning to begin automatically increasing the amount workers contribute to the 401(k) plan (26 percent) and automatically rebalancing their investments (33 percent) during the coming year. These automatic features are typically applied only to new hires. Just 18 percent of the companies surveyed are planning to automatically enroll existing employees.

Roth 401(k)s. Just over a third (34 percent) of employers currently offer a Roth 401(k), up from 29 percent a year ago. And another 38 percent of companies plan to add a Roth option in 2011.

Target-date funds. Target-date or lifecycle funds have become nearly universally offered as a 401(k) investment option (83 percent). And 39 percent of companies without target-date funds intend to add them to the fund lineup this year. But the investment strategy of target-date funds varies considerably from company to company. A target-date fund’s mix of stocks, bonds, and cash will grow more conservative over time. About half (53 percent) of these target-date funds reach their most conservative investment allocation during the year in the fund’s name. The other half (47 percent) of the target-date funds continue to grow more conservative after the employee retires.

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More investment options. Firms are aiming to change their fund lineups with an eye on the bottom line. About half of employers (53 percent) plan to seek out lower cost fund options next year. Managed accounts are also increasing in popularity, with 36 percent of employers offering them and another 30 percent planning to add them as an investment option.

Add annuities. There is increasing interest in adding annuity features to 401(k) plans. Some 19 percent of companies currently offer a retirement income stream option to employees, and another 13 percent plan to add this feature in 2011. Some employers (13 percent) also facilitate the purchase of an annuity outside the plan.

401(k) matches slowly return. Almost a quarter (23 percent) of the employers surveyed suspended or reduced company 401(k) matching contributions in the past two years. About half (55 percent) of these employers have since fully or partially reinstated the match. The rest plan to resume the match in 2011 (18 percent), boost company contributions in 2012 or later (11 percent), or continue to go matchless.

Little employee input. Only a quarter of employers plan to collect data on employee preferences for the retirement program in the coming year. Employers are much more interested in measuring how competitive the retirement program is compared to other employers (65 percent) than whether the retirement plan will provide an adequate retirement income for employees (44 percent). Fewer than a third (30 percent) of companies are confident employees are sufficiently prepared for retirement.

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Pension freezes. Traditional pensions are likely to continue their steady decline next year. Only 28 percent of those surveyed still offer traditional pension benefits to newly hired employees, compared to 69 percent that once had a pension plan. Some of the companies with pension benefits say they will close the plan to new hires (13 percent) or freeze accruals for all employees (16 percent) in the coming year.

Costly retiree medical benefits. Even fewer companies (22 percent) offer subsidized retiree medical plans to new hires. Workers who do get this benefit will generally have to pay more for it next year. Employers that provide retiree health insurance are planning to increase retiree contributions to premiums (73 percent) and raise cost-sharing requirements (59 percent).