Data & Research February 23, 2011

Fidelity Data Show Engaged Plan Participants

Fidelity found workplace retirement plan participants are becoming increasingly more engaged in their plans.
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In 2010, approximately three out of four active participants contacted Fidelity via the phone or over the Web. And more than 1.1 million participants took advantage of Fidelity’s online guidance tools, the company reported today. 

Of those who used the savings tools, nearly half (47%) increased contributions to their 401(k)s by an average of three percentage points (from 4% to 7%). When employees sought Fidelity’s guidance with their investment strategy, one in five made adjustments to their portfolio from suggestions based on their age and target retirement date.  

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The average 401(k) account balance rose to $71,500 at the end of 2010, reaching a 10-year high, since Fidelity began tracking the data based on its participant base of 11 million 401(k) accounts. For participants who were continuously active for the past 10 years, their average balance increased to $183,100 at the end of last year from $59,100 at the end of the fourth quarter 2000, the announcement said.  

Average participant deferrals remained at 8.2% for an eighth straight quarter. For a seventh straight quarter, more participants increased their total deferral rate than decreased (6.1% vs. 3%, respectively).  

According to the Fidelity data, nearly four out of five participants have rejected the urge to take out a loan. Seven out of 10 participants opt not to cash out of their 401(k)s in the months following a separation from an employer, instead electing to stay in-plan or roll over into another qualified retirement account such as an IRA.  

More than twice as many active participants in their 20s contribute to Roth 401(k)s than do those aged 50 and older (9% vs. 4%, respectively). Approximately half of Roth 401(k) contributors earn less than $75,000, and one in four earns less than $50,000.   

One out of five Fidelity plan sponsors offers eligible employees a Roth 401(k). Fidelity’s largest plans (more than 250,000 participants) have adopted at the greatest rate, with half offering the feature.

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Match is Back for Majority  

Only 8% of Fidelity client plan sponsors reduced or eliminated their employer contributions during the height of recession in 2008 and 2009. Since then, more than half (55%) have already or indicated they plan to reinstate this benefit within the next 12 months.  

Larger companies (5,000+ employees) are at the forefront of this trend with 71% having already reinstated or planning to reinstate their employer contribution.  

Overall, 80% of active participants within corporate defined contribution plans recordkept by Fidelity received employer contributions in 2010.
Compliance February 23, 2011

ERIC Urges Exclusion of Benefit Plans from Swap Regs

Commenting on swap regulations under the Dodd-Frank financial reform bill, the ERISA Industry Committee (ERIC) asked for special considerations for employee benefit plans.
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ERIC submitted comments to the Commodity Futures Trading Commission (CFTC) and Securities and Exchange Commission (SEC) on proposed rules defining “major swap participant” and “major security-based swap participant” under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The group urged regulators to exclude from the major participant definitions employee benefit plans that are subject to the fiduciary provisions in Title I of the Employee Retirement Income Security Act (ERISA), noting that the investment activities of ERISA Title I plans are already extensively regulated and pose little risk to the U.S. financial system.    

ERIC suggested that if the agencies decide to not exclude ERISA Title I plans from all aspects of the major participant definitions, then they should clarify the exclusion for positions maintained by employee benefit plans, and that a variety of different risks are “directly associated with the operation of the plan.”   

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The group explained that employee benefit plans often use swaps for purposes of portfolio rebalancing, diversification, or gaining exposure to alternative asset classes, and they are essential to the plan’s operations.  Accordingly, and because swaps and similar hedging is already governed by strong fiduciary regulations, the major participant definitions should make clear that swap positions maintained by employee benefit plans should be excluded from Dodd-Frank regulations that were in fact intended to regulate broad-based financial institutions.

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Business Conduct Standards  

ERIC submitted a separate comment letter to the CFTC on the proposed business conduct standards for swap dealers and major swap participants dealing with Special Entities under the Dodd-Frank Act.   

The group contends that many of the business conduct standards that apply to swap brokers and major swap participants duplicate protections already fully developed, understood, and strictly enforced under ERISA.  Therefore, they confer no benefit on ERISA-governed plans, according to ERIC.   

“The greater danger, however, is that the standards will actually harm these plans by making swap transactions prohibitively expensive, or by discouraging swap dealers and major swap participants from dealing with ERISA-governed plans at all,” ERIC said in the letter.    

The group contends that “[t]his is not a hypothetical concern: some ERIC members have already been told by swap dealers that the dealers will cease to engage in swap transactions with ERISA-governed plans if the dealers are subject to the requirements set forth in the proposed rule.”

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