With so many surveys reiterating Americans' lack of preparedness for retirement, it's certainly good news that assets in 401(k) plans are finally growing again. However, that's primarily because the stock market performed so well in 2003, not because employers or investors are committing more money.

In 2003, 401(k) assets rose 22% to $1.8 trillion, reversing a three-year decline, according to a Marketplace Update report from the Society of Professional Administrators and Recordkeepers (SPARK) of Simsbury, Conn. But the number of plans and workers invested in those plans grew only slightly. In 2003, there were 395,000 plans covering some 45 million workers, compared with 382,000 plans and 40 million participants the year before.

The bulk of new plans are being started by small companies, while the average participation rate has remained around 78% for plans with more than $5 million and 75% for plans with less, a SPARK spokeswoman said. While some employees enrolled for the first time last year due to relaxed eligibility requirements at their firms, other participants dropped out of their 401(k) plans.

But perhaps the most telltale sign about 401(k) participation, according to the report, is that contribution levels have not budged. "It's how much they're contributing that's the issue," said Bob Wuelfing, president of SPARK. "The average numbers we see misrepresent the picture because the largest 15% of participant accounts control 75% of the assets. On average, the deferral rate is 6%, but again, the mean is very different. SPARK could not provide data on the mean contribution rate.

Still, industry insiders said enrollment and contribution rates could get a boost after the IRS issued guidance this summer on automatic enrollments, which were initially authorized in 1998. Under the new guidance, companies can now set default contribution rates above 3% for 401(k) participants, establish automatic periodic increases in the contribution rate over time, or stipulate that the contribution level will rise whenever an employee gets a raise or a bonus.

"Last year's study showed about 25% of plans already had automatic enrollment, and another 20% said they were likely to implement it," Wuelfing said. "With the IRS letter, that number is likely to increase."

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