Data & Research May 13, 2009

Participants More Interested in Education, Fidelity Says

With the economy still uncertain and continued market volatility, Fidelity Investments said it is seeing higher levels of worker engagement in retirement plans.
Reported by

Fidelity’s data, based on more than 17,500 of its corporate defined contribution plans and 11.3 million participants, show that nearly half of all plan participants contacted Fidelity about their workplace savings plans during the first three months of 2009. Additionally, according to a news release, Fidelity provided nearly 4,000 financial seminars attended by nearly 208,000 workers representing over 920 employers across the country during the first quarter.

Fidelity is also seeing an increased demand for live seminars held over the Internet, the company said.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Additionally, Fidelity said many participants are also using its retirement planning tools to help them better understand their risk tolerance and plan for retirement. In the first quarter alone, 236,000 participants used one of Fidelity’s planning tools either on their own or with the assistance of a Fidelity representative on the phone or via a live Web chat.

Participants Continue Saving

Overall, nearly half of the participants who attended a seminar or experienced a planning session with a representative took some action either by rebalancing their account or increasing their contribution to their workplace savings plan.

Data on Fidelity clients’ defined contribution plan participants show that 97% of active participants continued to make contributions in the first quarter. On average, workers contributed $1,700 of their pre-tax income in their workplace savings accounts in the first quarter, down slightly year-over-year ($1,860). With a majority of employers also continuing to contribute to their employees’ workplace savings accounts, according to a Fidelity press release, total contributions totaled $2,780 on average in the first quarter, a slight decrease from $3,080 in the first quarter of 2008.

Exchange levels in the first quarter were down from the fourth quarter of 2008 and also from year-over-year levels. About 5.2% of participants in the first quarter made an exchange, down from 6.1% in the fourth quarter of 2008 and 6.2% during the first quarter of 2008.

Twenty-five percent of new contribution dollars are being invested in blended options, a vast majority of which are lifecycle options, Fidelity said. More than 51% of new contributions to 401(k) plans are going into equities, including domestic, international, and company stock. In total, participants are directing nearly 69% of their new contribution dollars into equities (domestic, international, company stock, and the equity portion of blended options).

The remaining quarter of new contributions are being invested in more conservative short-term, stable value, or fixed-income investments, up slightly from the previous quarter.

In addition, auto-enrollment has been adopted by more than 16% of plans, led by larger plans, covering nearly 50% of the participant base. More than 50% of plans with 25,000 participants or more have adopted auto-enrollment.

Employers also increased their adoption of Roth 401(k) in the first quarter to 14.7% of plans at the end of March, up from 13.2% at the end of 2008.

Data & Research May 13, 2009

Plan Sponsors Make More Changes

A survey by the International Foundation of Employee Benefit Plans (IFEBP) found defined contribution sponsors are making plan changes in the face of the economic downturn.
Reported by

An IFEBP news release said 13% of DC plan sponsors have changed their investment product offerings as a result of the crisis—almost double the 7% who reported doing so six months earlier. Of the 13% who have implemented changes, 21% added more low-risk investment choices, 18% increased diversification, 16% added lifecycle (target-date) funds or money market funds, and 15% added government-backed options.

The poll found 16% of DC plan sponsors reduced or eliminated employer matches as a result of the economic situation. Of those who report having changed their match, 44% have reduced the amount of the match and 52% have suspended the match all together. Corporations are the most likely to have taken this action, IFEBP said.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

Forty-four percent of DC sponsors report a decrease in participants’ overall amount of contributions—representing a sharp uptick since October when just 28% of plan sponsors reported this trend. Even more notable, 40% of DC sponsors report an increase in the number of participants stopping plan contributions altogether.

DB Plans

Defined benefit (DB) sponsors are also making changes. IFEBP found 42% of DB plan sponsors changed their strategic asset allocation—more than double the 20% who reported having done so in a poll six months earlier. The most common changes are increasing fixed-income assets (37%), reducing U.S. equity allocations (17%), and increasing alternative fund investments (13%).

DB sponsors are also taking another look at offering a pension plan at all. Some 27% have discontinued offering pension benefits for all or some employees, and 21% have closed their plan to new participants, the survey found.

“Six months ago, many retirement plan sponsors reported they were ‘taking the long view’ of the situation,” said Sally Natchek, senior director of research at the International Foundation, in the news release. “Now, employers seem to view the crisis as more severe. There’s been a jump in the number making changes to their offerings, categories of employees covered, asset allocations, and employer matches.”

Hardship Withdrawals

Hardship withdrawals and loans from DC plans are also on the rise, with 42% of plan sponsors reporting an increase in the number of participants making hardship withdrawals and 40% reporting an increase in those borrowing from retirement accounts, the IFEBP survey found.

That is in contrast to six months ago, when 29% of plans sponsors reported an increase in hardship withdrawals and 28% indicated an increase in loans.

The survey included responses from 1,305 U.S. pension plan sponsors of corporate plans, public and governmental plans, multiemployer plans, and others.

Pension Plans: Impact of the Financial Crisis, May 2009 can be purchased by nonmembers for $50 here.

 

«