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401(k)s remain strong even after recession

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in Employee Benefits Program,Human Resources

Despite the tepid economy of the past five years, employers have remained committed to funding their employees’ 401(k) retirement benefits, according to a survey released in March by WorldatWork, a global HR association, and the American Benefits Council.

Although many companies cut back or canceled their 401(k) matches to conserve capital during the depths of the recession, 88% of survey respondents said their companies continuously maintained matching contributions throughout the economic downturn that began in 2008.

Now, employee participation rates are up, and workers are relying less on their 401(k)s for emergency cash.

Coming in the same week that the Dow Jones Industrial Average reached record highs—meaning many long-term investments have recouped losses that occurred in late 2008—the report signals good news for employees’ retirement prospects. Yet the survey also found that many employees are not taking full advantage of their retirement benefits.

The “2013 Trends in 401(k) Plans and Retirement Rewards” survey of 476 employers provides a snapshot of defined-contribution plan activity at major American companies. Almost all of the firms surveyed—94%—reported that they offer a 401(k) retirement plan to their employees.

Among the key survey findings:

  • For more than three-quarters (77%) of surveyed companies, there has been no change in the 401(k) matching formula during the past 12 months, nor are they currently considering a change in the near future.
  • A strong majority (73%) of companies in the survey reported that 70% or more of their eligible employees currently participate in their organization’s 401(k) plan.
  • Compared with 2008, fewer employees are now taking hardship distributions and loans from their 401(k) plans.

“The survey results show that em­­ployers and employees are utilizing 401(k) plans and value these plans as an integral piece of retirement planning,” said Cara Woodson Welch, WorldatWork vice president of policy and public affairs.

“Employers’ continued investment in 401(k) plans—seen through sustained contribution levels, enhanced plan choices and increased usage of automatic enrollment features—is further evidence that employers view 401(k) plans as a fundamental part of an employee’s total rewards package.”

Employees have more investment choices than ever.

Nine out of 10 organizations reported giving participants more than 10 investment options in 2012. More than half (54%) reported offering 16 or more investment options—a slight increase since 2008, when the survey was last conducted.

Leaving money on the table

Employees continue to sock away retirement funds in their 401(k)s. Three-quarters of responding organizations indicated that their employees contribute, on average, more than 5% of salary per paycheck to their 401(k) plans. However, fewer than 10% of employees elect to contribute the maximum to their retirement plans.

Two-thirds of respondents reported that at least half of their plan participants contribute enough to take advantage of the full employer match. How­­ever, that still means many employees at a third of companies are missing out on the full potential of their retirement benefits.

“This study makes clear that too many workers are leaving money on the table by failing to maximize their employer’s match,” said Lynn Dudley, an American Benefits Council vice president.

Call for more education

The way to encourage more employee participation and greater contributions to 401(k) plans, according to Dudley: More employee education on the advantages of tax-deferred savings.

Employers may also be able to help improve employee contribution rates by implementing automatic escalation features, in which participant contributions gradually increase over time or with salary increases. About half of respondents (56%) said they offer automatic employee enrollment in 401(k) plans. Twenty-six percent have automatic enrollment with an automatic escalation feature.

Financial education in general might help improve participation. The economic downturn left many employees financially shell-shocked. There is some evidence that concerns about debt keep many employees from participating in and contributing to workplace retirement plans.

To help, 20% of companies reported that they offer cash and debt management education to their employees. Two-thirds of those employers reported providing advice through an independent advisor who is not connected with the firm that administers their 401(k) plan.

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