In releasing its annual report on the state of the 401(k) industry, Fidelity Investments stressed that while automatic enrollment in 401(k)s is still not widespread, it has a significantly positive effect on participation, savings rates and diversification.
A mere 200,000 employees are automatically enrolled in 401(k) plans in 2006, twice than were in 2005, Fidelity found, by analyzing the 10 million participants in the defined contribution plans it administers in 13,000 plans. But at companies that had auto enrollment, participation in 401(k) plans was 28 percentage points higher than in plans that didn’t have such a feature. Nonetheless, participation declined slightly in 2006, to 63.1%, from 63.4% in 2005. The amount of income that participants contributed remained unchanged, at 7%. Fidelity recommends that investors place between 10% and 15% of their salaries in 401(k)s.