While 46% of plan sponsors have or are planning to decrease 401(k) matches for rank-and-file employees, budgets are increasing for 401(a) profit-sharing plans, usually offered to higher-paid workers, Diversified Investment Advisors found in a survey of 279 employers with 1,000 or more employees.
“The events of the last year have forced many corporate employers to scale back on their 401(k) contributions or cut them entirely, but this does not tell the whole story,” said Diversified Vice President Laura White. “For example, 46% of 401(k) plan sponsors also offer a 401(a) plan, 87% have a traditional pension plan, and 51% offer a cash balance plan.”
According to Diversified’s survey, benefits budgets have risen to 27.9% of payroll, up 1.3 percentage points from 26.6%.
Of those employers that still contribute to their 401(k) plan, 78% give a flat-rate match, as opposed to a percentage of salary (41%) or a fixed amount (16%). The most common matching formula is 50 cents on the dollar up to 5% to 6% of compensation.
Among those that plan to reduce benefits costs in 2009, only 17% are reducing employer contributions to their defined contribution plan. Thirty-seven percent plan to negotiate fees with the provider, 33% will negotiate fees with the adviser, and 32% will change the way expenses are paid, presumably by transferring a greater share of the burden to employees.
Diversified also found that 40% of sponsors with $10 million or more in defined contribution plan assets plan to conduct a due-diligence search to ensure they are receiving a good value.
The survey also found that 44% of 401(k) plans have participation rates above 80%, compared to 28% of plans just three years ago.
“Automatic plan features, particularly enrollment, as well as a change in attitude toward retirement savings in general, have contributed to these increased participation rates,” White said. “In fact, nearly two-thirds of employers surveyed have implemented automatic enrollment.”
The survey also found that 55% of plans now offer target-date funds, up from 37% of plans that did in 2007. Even more compelling it that an additional 29% of plan sponsors plan to introduce them within the next 24 months.
And target-date funds may increase participation rates; 66% of plans with these funds have participation rates of 70% or more, compared to 43% of plans without them.
401(k) plans are also offering fewer funds than in the past. The number of 401(k) plans that offer five or fewer funds has risen to 33% in 2009 from 18% in 2007, while the incidence of plans that offer 10 to 14 funds has dropped to 15% today from 22% in 2007.
Forty-one percent of plans are also offering collective trusts, up from 25% in 2007. Forty-two percent are now offering inflation-protected securities, and 41% are offering real estate investment trusts. And 44% of sponsors plan to educate participants about retirement income.
Eighty-five percent have an outside adviser to research and monitor investment options, thereby assuming the role of plan fiduciary.
“Plan sponsors are looking for smarter ways to do business when it comes to their retirement plan offerings,” White noted. By performing more due diligence to find the best providers, services and products, coupled with moves to outsource functions, plan sponsors are finding ways to remain competitive and, at the same time, implement best business practices.”