Surveys: Majority of Employers Maintaining or Increasing Their 401(k) Match, 48% of Employees Would Opt Out of Social Security
We have shared information about reducing or eliminating matching contributions in the following posts:
Before you reduce or eliminate your match, consider the results of a survey that found that the majority of employers are maintaining or increasing their 401(k) match:
March 17, 2009 – Washington – A new survey of employers released by WorldatWork and the American Benefits Council, "Trends in 401(k) Plans," and presented today at a National Press Club Newsmaker press conference in Washington, DC, finds that the financial crisis has not significantly discouraged 401(k) contributions or participation. A full 74 percent of employers reported no change in the employer matching contribution; 15 percent have either increased or are considering increasing the employer match; eight percent have either decreased or are considering decreasing the 401(k) match, and three percent reported eliminating the match.
According to the survey, more than nine out of ten U.S. companies offer an employee 401(k) plan. In addition, despite the widely reported drop in account balances, two-thirds (66 percent) of organizations indicated that at least 70 percent of eligible employees participated in those 401(k) plans in 2008.
"These statistics reflect that employers are clearly committed to providing retirement savings opportunities to their workers, even in tough economic times," said Cara Welch, public policy director for WorldatWork. "401(k) plans serve a wide range of employers and a wide range of employees. Additional reform should encourage and build on this commitment and avoid creating new obstacles to plan sponsorship."
Nevertheless, the impact of the shrinking economy and the reality of financial stress felt by Americans can be seen in some employee behavior. Nearly half (49 percent) of companies surveyed report that employees are increasingly taking loans from their retirement accounts. "The real importance of these findings is that the 401(k) plan system is an integral part of our retirement system in this country," said Lynn Dudley, senior vice president, policy, for the American Benefits Council. "Our study shows it remains both strong and popular."
Other Key Findings
- In 2008, 94 percent of companies provided some type of employer match to the employee's individual 401(k) contribution, compared to 93 percent when the survey was first conducted in 2002.
- The most common employer matching contribution is three to four percent of a participant's pay; the most common employee contribution is five to seven percent per paycheck.
- Forty-four percent of participating organizations offer automatic enrollment in 401(k) plans; 56 percent do not. President Obama's FY 2010 budget included proposals for mandatory automatic payroll-deduction into workplace plans or individual retirement accounts.
Here is the summary of key findings of the Trends in 401(k) Plans survey:
Participation
- More than 90 percent of participating organizations offer a 401k plan to employees. (See Figure 2.)
- Despite the widely reported drop in account balances, two-thirds (66 percent) of organizations indicated that at least 70 percent of their eligible employees participated in a 401(k) plan in 2008. (See Figure 3.)
Effect of Recent Financial Crisis
- In an open-ended format, approximately three-fifths of respondents stated that the financial crisis had not caused any changes to their companies' 401(k) plans.
Employee and Employer Contributions
- Almost half of participating organizations (49 percent) reported that more than 10 percent of eligible employees elected a maximum contribution to their plan in 2008, while 17 percent reported that more than 50 percent of employees elected the maximum contribution. (See Figure 4.) With the passage of the Pension Protection Act (PPA), these percentages may increase as more employers adopt automatic enrollment and automatic escalation plan provisions.
- Fifty-two percent of participating employees contribute 5 percent to 7 percent of their pay per paycheck. (See Figure 5.)
- Half of employers offer a 3 percent to 4 percent (of the employee's compensation) matching contribution to employees' 401(k) plans based on the employee's contribution. (See Figure 6a.)
- Cash continues to be the preferred form of employer 401(k) match, increasing by 17 percent since 2003 to 91 percent. A significant shift has also occurred toward the removal of the holding requirement on company stock since 2002. While the majority of organizations had a specific time limit in 2002 and 2003, 77 percent of organizations reported that they do not have a requirement in 2008. These results do not come as a surprise considering the Enron bankruptcy, the employer stock diversification requirements in the PPA and the passage of Sarbanes-Oxley. (See Figures 7 and 7a.)
- A very small percentage of companies (11 percent) have more than 20 percent of their employees' aggregated 401(k) plan money in company stock. (See Figure 8.) This aligns with the significant shift that has occurred since 2003.
- Only 5 percent of participating organizations have either eliminated or decreased their 401(k) match in the 12 months prior to data collection in December 2008. (See Figure 9.) Similarly, plan activities such as participation rates and employee contribution rates have stayed about the same for the majority of companies. However, participants reported that the number of hardship distributions and loans taken out of 401(k) plans has increased in nearly half of the companies, which is expected considering the contracting economy. (See Figure 10.)
Investment
- Figure 11 indicates that nearly half of companies (47 percent) provide investment advice through a third-party adviser.
- The employee investment portfolio indicates diversification among plan respondents. Domestic equity was most commonly rated among the top three investment choices in terms of popularity among participating employees. Target retirement date/lifecycle funds are also among the vehicles ranked with the highest participation, indicating that more employers are offering these plans to their workforce and more employees are taking advantage of them. (See Figure 13.)
- Upon the last investment menu review at participating companies, fees were ranked among the two most important consideration factors by 28 percent of companies, compared to investment returns (51 percent), risk characteristics (34 percent) and diversification (33 percent). (See Figure 14.)
Automatic Enrollment
- Forty-four percent of participating organizations offer automatic enrollment in 401(k) plans. The trend toward automatic enrollment is not surprising as more companies have attempted to increase the enrollment of their employees, especially for those on the lower end of the compensation structure. The passage of the PPA, which supports and encourages the use of automatic enrollment with guidelines on default percentages and funds, has further provided momentum. (See Figure 16.)
- For organizations with an automatic escalation clause, the majority (69 percent) apply a 3 percent initial default employee contribution. The escalation rate after initial default contribution level is 1 percent to 1.99 percent per year for more than 90 percent of organizations. (See Figures 17 and 18.)
- Organizations that automatically enroll employees in the 401(k) plan, but do not have an automatic escalation clause, typically default the employee contribution to 3 percent. (See Figure 19.)
Majority of Employers Continue 401(k) Match compares the survey results to the Sun Life Unretirement Index survey that "Almost half of Americans would opt out of Social Security System":
The UnretirementSM Index asked American workers if they would stop paying Social Security taxes, knowing that they would not receive any benefits, if they could. Results show that almost half (48%) would prefer to stop paying into the Social Security system.
- Even among Americans nearing traditional retirement age, many would choose to stop paying Social Security taxes and then not receive the benefits. One in three (33%) workers over the age of over the age of 60 said they would rather opt out.
- Income level was not a strong factor impacting American workers' attitudes toward Social Security. Almost half (47%) of Americans with a household income of less than $25,000 would choose to opt out of the system, and a little more than half (52%) of Americans making over $125,000 a year would also choose to stop paying Social Security taxes and not receive benefits.
- Men are far more likely than women to say they would rather not pay into Social Security and receive any benefits. Overall, 49% of men and 44% of women would opt out. The greatest difference between genders was among workers age 40 to 49; 57% of men would opt out of Social Security, while 45% of women choose to do so.