Majority of Large Employers Use Automatic Enrollment

A majority of large employers now automatically enroll workers into their 401(k) plans, according to a new survey by Towers Watson.

The survey of 334 companies with 1,000 or more employees found that 57% automatically enroll employees into their 401(k) plans. This includes 39% that automatically enroll new employees and 18% that automatically enroll all employees.   

Another 3% plan to begin automatic enrollment by next year, and an additional 18% are considering it.   

According to a press release, the survey also revealed that in 2009 relatively few employees declined to participate after they were automatically enrolled ¾85% of companies report fewer than 10% of employees opted out of the 401(k) plan.   

The survey also found that target-date funds are the most prevalent default investment option. Nearly three-fourths of respondents (72%) use target-date or lifecycle funds as the default option, followed by 13% who use balanced or lifestyle funds. Seventy-eight percent of those using target-date funds as their default option have selected funds not affiliated with their recordkeeper.  

Since the financial crisis hit in September 2008, 18% of the respondents have either reduced or suspended their matching contributions to their 401(k) plans. The press release said that among those employers, less than half (49%) have yet to restore the match, although virtually all indicated they are considering reinstating all or a portion within the next 12 months.   

Of the companies that have reinstated the match, the vast majority restored it to its previous level. A relatively small number of companies reinstated a smaller fixed match or reinstated a match that may fluctuate based on the company achieving certain goals. 



The Guaranteed Income Option 

One aspect of 401(k) plans that is receiving attention at the employer, regulatory and legislative levels is the use of lifetime income options such as annuities. The Towers Watson survey found that about two out of 10 employers (18%) either currently offer annuities to participants or plan to do so this year or next. However, 30% of respondents are considering offering this option.   

Of the employers that offer annuities as a distribution option, 79% report that only 5% or less of their plan participants choose this option.   

“With the continuing shift in corporate America away from traditional defined benefit plans and toward account-based plans like 401(k) and cash balance pension plans, annuities and other distribution designs can provide a steady stream of retirement income and help retirees’ nest eggs last through their lifetimes,” said Robyn Credico, senior retirement consultant at Towers Watson, in the press release. “But we’re still not at the point where annuities are being widely used in 401(k) plans to bridge the gap between traditional-style pensions and defined contribution plans.”   

Other survey findings included: 

  • Over 60% of companies offer more than 15 investment options; 
  • 45% of companies offer company stock as an investment option, 53% of such companies do not make contributions in company stock, 40% of such companies are planning or considering limiting investments in company stock, e.g., to a specific percentage; 
  • While the majority of sponsors report the same level of communication as last year, nearly half report more communication on asset diversification and nearly a third increased communication in other areas, such as participation; 
  • Nearly a third of sponsors are putting greater focus in their communication on retirement income adequacy. 


The Towers Watson Defined Contribution Survey was conducted online during April and May 2010. More information on the survey is available at