Human Resource & Payroll Services And Solutions - Houston, Dallas, Austin - Texas www.hrp.net. Employee Guide to 401(k) retirement plans.

1. Toll Free: 877.880.4477
Phone: 281.880.6525
Keeping Your 401(k) Plan Competitive
and Effective
401(k) Plan Competitive
and Effective
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2. » When the economy tanked after the 2008 financial crisis, it was an easy
"survival mode" decision for many employers, large and small, to suspend
401(k) matching contributions.
» But in the most recent member poll by the Plan Sponsor Council of
America, matches have been restored by all but about 7 percent of the
smaller employers (defined as under 200 employees). That's down from
about 16 percent the prior year.
» Similarly, employees themselves are thinking more long-term, with 80
percent of those eligible making contributions to their plan, up from
about 77 percent the year before.
» Their average deferral amount also grew somewhat, from 6.2 percent to
6.4 percent. (The PSCA data reflects what employers were doing in 2011,
and the organization believes these upward trends have continued in
2012.)
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3. Small Employers as Generous as Large
» Noteworthy in the survey is the fact that the smallest employer group
(under 50 employees) is about as generous as the largest group (5,000+
employees). Only about three percentage points separate them on the
prevalence of offering a matching contribution.
» And when it comes to the actual dollars contributed to eligible employee
401(k) accounts -- when 401(k) plans are a component of a profit sharing
plan, which is the most common arrangement -- large and small
employers are about dead even, at 5 percent of payroll, according to the
PSCA data.
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4. » What are employees doing with these dollars? Target date funds (TDFs),
whose asset allocation becomes more conservative through time based
on employees' proximity to their expected retirement, continue to grow
in popularity. Overall, about 69 percent of plans offer those funds, up
from 62 percent the prior year.
» Employee dollars invested in target-date funds is 12.4 percent of all fund
assets covered in the PSCA survey. This is greater than the "stable value
funds" which came in at 10.7 percent -- the category that once dominated
the 401(k) landscape.
Target Date Funds
Target Date Funds
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5. » Target date funds have plenty of competition for employee dollars. The
typical plan has 19 investment choices, and small employers offer an
average of 22.
» With so many choices, most employers (58 percent) make investment
advice available to employees, either through online automated tools or
through humans.
» But less than one in five (19 percent) of employees bother to use these
services, according to the PSCA survey.
» It's been that way for a long time, according to Hattie Green an, PSCA's
research manager. Employers should just keep encouraging employees to
take advantage of them, she says.
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6. The Role of Target Date Funds
» Low utilization of advice services is all the more reason employers should
make sure employees understand TDFs, according to, a large asset
management company and strong believer in that investment concept.
» A recent report by the company highlights the distinction between
confident, active employee investors (38 percent of AllianceBernstein's
universe), and the rest, which it calls "accidental investors" -- employees
forced to make investment decisions simply by being in a 401(k) plan.
Role of Target Date Funds
Role of Target Date Funds
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7. » According to the report, "accidentals… invest inconsistently and lack
confidence in their ability to make good investment decisions. All the
education and communications provided won't likely change that… We
shouldn't expect that access to investment education will turn
participants into investment pros."
» It is perhaps for that reason that TDFs are the overwhelming favorite
(chosen by 70 percent in the PSCA survey) default investment for 401(k)
plans that automatically enroll new employees or "auto-enroll" non-
participating employees, putting the onus on them to not participate in
the plan.
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8. Ambivalence on Auto-Enrollment
» Small employers have, however, been more reluctant to embrace auto-
enrollment. Overall nearly half of employers in the PSCA poll auto-enroll,
focusing primarily on new hires.
» But auto-enrollment is still rare (12 percent) among the smallest survey
segment, which is companies with under 50 employees, and used by 37
percent of employers in the 50-200 employee bracket.
» Among employers that do auto-enroll, the most common default deferral
percentage is 3 percent, used by 54 percent of those surveyed.
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9. » Only certain kinds of investments are "qualified default investment
alternatives," or QDIAs. Those include target date funds, "target risk
funds," such as a spectrum of balance funds described as suitable for
"aggressive," "moderate" or "conservative" investors, as well as stable-
value funds. However, stable value funds can only be used temporarily,
for the first 120 days after an employee begins contributing.
» AllianceBernstein stresses the importance of picking a default investment
option carefully. "As more plans continue to adopt automatic enrollment,
the selection of a default option will increase in importance," according to
the report. "Within 10 years, QDIAs will likely account for the vast
majority of plan assets."
» Overall, the news on the retirement front seems positive. Employer
match is making a comeback and employees are expressing renewed
confidence to some degree, by focusing less on the woes of today's
economy and looking instead at stabilizing the horizon of the future.
Confidence breeds strength.
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10. 14550 Torrey Chase, Suite 100 Houston, TX 77014 USA
Toll Free : 877.880.4477
Phone : 281.880.6525
Fax : 281.866.9426
E-mail : info@hrp.net
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