Offering Investment Advice is More the Norm at 401(k)s

Half of employers now offer workers outside investment advisory services, including advice, guidance, and/or managed accounts, according to Hewitt Associates.

That’s up from 40% in 2007 and 37% in 2005. Furthermore, nearly three in 10 401(k) plans (29%) offer one-on-one financial counseling and 28% offer online guidance, compared to 22% and 18%, respectively, two years ago, according to the results of the Hewitt survey of more than 300 companies.

More than a quarter of retirement plans now offer managed accounts, up from 11% in 2007.

Auto Features on the Rise

In addition to investment advice, more 401(k) plans are adopting automatic enrollment, which jumped from 34% in 2007 to 58% in 2009. In addition, Hewitt found that 69% of the programs using automatic enrollment default workers into a target-date fund, up from 50% in 2007.

Now more than three-quarters (78%) of respondents offer target-date portfolios, up from 58% in 2007 and 28% in 2005.

The number of employers defaulting employees into contribution rates at 3% or higher increased from 83% in 2007 to 89% in 2009.

The survey found the number of companies offering automatic contribution escalation also increased to 44% in 2009, up from 35% in 2007 and almost five times higher than in 2005 (9%). Further, 47% offer automatic rebalancing, compared to 26% in 2005.

Moving Beyond Enrollment

Hewitt researchers said the numbers are part of the general industry trend that has moved beyond simply getting people into the plan to trying to encourage participants to save enough to last through their retirement years. Fund performance and plan fees also continue to be top of mind for sponsors, Hewitt asserted.

"Over the past decade, design changes in 401(k) plans have generated many positive improvements in certain employee investment behaviors and participation rates, but there's still work to do," said Pamela Hess, Hewitt's director of retirement research. "Companies need to be focused not only on getting workers to save, but getting them to save at levels that put them closer to meeting their retirement goals. This means reviewing appropriate default contribution rates and investment funds, and considering coupling automatic enrollment with other automated tools, targeted education and resources that force employees to save and invest more wisely."

Monitoring Plan Fees

According to Hewitt, 84% of employers have attempted to calculate the total cost of maintaining their 401(k) plan—up from 60% in 2007 and only 29% in 2001. Almost three-quarters of employers (74%) have made efforts to reduce expenses, up from 57% in 2007. These efforts include negotiating with their current service provider to reduce fees (66%), swapping out funds for lower cost alternatives (51%), and working with fund managers for alternative pricing through collective trusts and separate accounts (18 %).

Some 59% ranked investment fees/expense ratios as one of the most important factors in selecting investment options for their 401(k) plans.

The survey also found that fee disclosure is becoming an increasing priority. Most plan sponsor respondents proactively disclose administrative fees to participants. Just 18% of plans disclose administrative fees only on a participant's request, versus 28% from two years ago.

Match Contributions

The Hewitt Associates survey found that 10% of companies temporarily suspended their employer matching contributions over the past two years. An additional 10% stopped making nonmatching profit sharing contributions (7%) and discretionary nonmatching contributions (3%).

Most surveyed plans (93%) offer some type of employer contribution to the 401(k) plan. The majority (65%) offer a fixed match, most commonly 100% of employee contributions up to 6% of pay.

In plans with a match, workers receive an employer match earlier than before: 56% of plans do not have any service requirements for participants to receive employer matching contributions, up from 44% in 2007.

Company stock is less popular: 17% of employers invest the employer matching contribution exclusively in company stock, down from 23% in 2007 and 45% in 2001.

Employers are providing workers with earlier access to 401(k) plans. In 2009, 74% of plans did not have a service requirement for participation in a 401(k) plan, up from 61% in 2007.