Products January 15, 2009

Regulators Release Auto-Enroll Info for Small Employers

The U.S. Department of Labor (DoL) and the Internal Revenue Service (IRS) released a new publication to help small employers understand automatic enrollment for 401(k) plans.
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Automatic Enrollment 401(k) Plans for Small Businesses provides a comprehensive overview of the advantages of starting and operating this type of 401(k) arrangement, according to a press release. The publication describes an automatic enrollment 401(k) plan, how to set up the plan, management of the plan, fiduciary responsibilities, and a checklist to ensure compliance with the law.

The agencies said the publication is part of an ongoing education campaign to educate employers, particularly small businesses, and help workers and their families save for a financially secure retirement.

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Free copies of the booklet and other materials developed under the campaign are available by calling EBSA toll-free at 866.444.EBSA (3272) or visiting the agency’s Web site at www.dol.gov/ebsa (see Publications).

Additional resources to help small employers are available through the IRS Web site at www.irs.gov/ep.

Data & Research January 15, 2009

Some 401(k)s Show Increase of Withdrawal Requests

While the trend might only affect less than 1% of 401(k) participants, a spike in withdrawal requests and deferral rate decreases to zero percent should still be a cause for concern for plan sponsors.
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That was a key conclusion of a new Mercer analysis of January to December 2008 data for the 1.2 million 401(k) participants in the plans it administers for clients.

Mercer pointed to two potentially dangerous trends in its analysis:

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  • a 59% increase in November and December for those asking for plan withdrawals
  • since July, a steady increase in the number of participants who have reduced their contribution rate to zero, and overall Mercer has seen more participants decrease rather than increase their contribution rates throughout 2008, a trend rarely seen in more stable economic times.

Mercer said participants have also shifted assets dramatically from equity markets into capital preservation funds. In fact, Mercer said that compared with the same time frame last year, balances and plan contributions in stable value and money market funds have grown 70% from 2007, while equity funds have decreased correspondingly.

Other findings from Mercer’s analysis include:

  • Mercer’s call center activity in September and October saw increases between 10% and 20%, but those are the only two months showing an increase since May 2008.
  • Mercer’s participant-related Web site traffic has remained fairly flat throughout 2008 with a spike occurring in October when the stock market had its most dramatic decrease.
  • Some 28% of 401(k) retirement plan participants have seen a 30% or more decrease in their account balances in 2008 through December.

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