Data & Research February 26, 2009

401(k) Match, Auto-Enrollment Key Participation Drivers

At a time when some employers are suspending their 401(k) match to save money, a new research study suggests the match is a “critical component″ of pushing up participation rates.
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A Fidelity news release said that when the match is combined with immediate vesting when all employees are eligible for automatic enrollment, the plan’s participation rate can soar to as much as 89%.

On average, offering a company match of at least 50% on every dollar of participants’ contributions, up to 6% of pay, or what equates to 3% of the participants’ salary, drives increased worker participation in plans by as much as 9%, according to the release. The Fidelity research was based on data from 7,000 plans recordkept by the investment company.

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“Many employers, both small and large, are facing tough decisions about employee benefits in this economic environment,” said Scott B. David, president of Workplace Investing at Fidelity Investments, in the news release. “We know that when companies eliminate the match to their workplace savings plans, almost half see a decrease in participation and deferral rates.”

The research showed that the provision of a company match has the largest impact on workers in their 30s and 40s, increasing their participation rates by 9%. Workers in their 30s had an average participation rate of 52% in plans where no company match is provided, versus 61% in plans with a match. Workers in their 40s showed similar rate increases, with participation at 61% in plans without a match versus 70% for plans with a match.

Among older workers in their 50s, participation rates increase seven percentage points from 68% in plans with no match to 75% in plans with a company match available.

Fidelity’s research also found that the match rate—or the minimum that the employee has to defer in order to get the full company match—has a strong influence on workers’ deferral rates. About 30% of participants enrolled in their workplace plan deferred the same amount as the company match rate, enabling them to take full advantage of the company match.

The research, covering 5.7 million eligible employees and 3.5 million participants, was conducted from September to November 2008 and was based on plan data as of December 31, 2007.

Data & Research February 26, 2009

Neither Oldest nor Youngest Boomers Prepared for Retirement

A second look at the Baby Boomers who turned 62 last year and a new look at the younger Boomers, now turning 45, shows both are not saving as much as they'd like.
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Forty-six percent of the oldest group and 57% of those in the younger group are not saving as much as they had hoped, according to a survey from MetLife.

The study entitled, Boomer Bookends: Insights Into the Oldest and Youngest Boomers, shows that in the group born in 1946 (some 2.7 million Americans), about one in five have delayed collecting Social Security, and few have fully retired (19%). Only 13% have saved fully for their retirement and another 25% say they are on track to do so, with a leading concern being affordable health care, according to a press release of the results.

About two-thirds of the oldest Boomers remain in the workforce, 50% full-time. Almost six in 10 have provided financial assistance to their children and grandchildren. However, 24% said they have no concerns about retirement, across income levels.

Sandra Timmermann, director of the MetLife Mature Market Institute, noted that in comparing responses between the 2007 and 2008 among the ldest Boomers (see “Boomers Turning 62 Ready to Embrace Retirement“), they continue to rate their health as good, they have remained in their own homes, and they continue caring for their aging parents; however, only 15% of those who said in 2007 that they would retire in 2008, actually did.

Many in the youngest group (4.6 million people born in 1964) would rather be described as Generation X than Baby Boomer and say they will consider themselves “old” at age 71 (compared with age 78, cited by the older Boomers), the press release said. Though they will not be eligible for full Social Security until age 67, the younger Boomers are resisting delaying retirement and say they want to retire by age 64. However, they believe they will not be able to do so until age 65.

Only 36% of younger Boomers say their retirement savings plans are on schedule and a good deal express concern about outliving their money. They will not rely on defined benefit pensions for their retirement income like the oldest Boomers; they expect to depend largely on the funds in their 401(k)s, MetLife found.

Social Security is still seen as playing an important financial role for both groups.

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