Some Auto-Enrolled Participants Don't Defer Enough

Industry insiders may not be surprised to hear that many automatically-enrolled 401(k) participants are not deferring enough. A report released today from the Government Accountability Office postulates that as automatic enrollment in 401(k) plans becomes more common, some participants are not putting enough money in those plans.

Auto-enrollment is slowly increasing in popularity, and is now used by 16 percent of employers, up from 15 percent in 2004. Yet, according to GAO data, the beneficial effects depend more on accompanying policies, and auto-enrollment may not be suitable fro all plan sponsors. And while participation increases, some workers who've been automatic enrolled in company plans actually have a lower contribution rate invested in less aggressive funds than those who've opted into DC plans. According to the report, the participation rate for those hired before automatic enrollment as adopted was 37 percent at 3 to 15 months of tenure, while the group hired after automatic enrollment have an 86 percent participation rate over a comparable period of time.

“Because such policies are being increasingly adopted,” the GAO said, “many additional workers will be brought into plans who might not otherwise have participated. Nonetheless, a number of considerations could potentially limit the extent or impact of such policies.”

Last year 49.8 million workers participated in 401(k) plans, amounting to $2.3 trillion in assets. The average 401(k) balance at the end of 2008 was $45,519, compared with $65,454 at the end of 2007, reflecting market losses, Bloomberg reported.

Printed from:
http://www.401kwire.com/common/article.asp?storyID=23040&template=article&wireID=1