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401(k) Changes Leading to More Participation and Diversification

Changes in the 401(k) landscape have resulted in employee participation rates remaining high and leading to more diversification. Aon Hewitt reached these conclusions after analyzing more than 3.6 million employees eligible for defined-contribution retirement plans.

Participation rates in defined-contribution plans, such as 401(k) plans, remain at an all-time high of 76%. Plans that automatically enroll employees have an 83% participation rate—18 percentage points higher than plans without an automatic enrollment feature. Participation rates rose for workers in the 20 to 29 age bracket, but declined for those over the age of 30 who earn less than $60,000 per year.

The downside to automatic enrollment is that employees often do not increase their contribution amounts after enrollment. The average savings rate among workers subject to automatic enrollment is just 6.7%, half a percentage point below the average contribution rate for all workers (7.2%). Furthermore, 39% of automatic enrollees saved an amount below the threshold for maximizing their employer’s matching contributions, versus 25% for all other workers.

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Discussion

Charles Rosehill from Hawaii posted about 1 year ago:

Hopefully investors will do better in contributions to 401K. Minimum percentage should be equal to employer matching. Be diversified so that you can ride out lows but take avantage of all highs.


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