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January 12, 2006
More Employers Add Automatic Enrollment to 401(k) Plans

A growing number of companies are adding automatic features to their 401(k) plans to encourage workers to save more for retirement, according to a study of 220 large companies by Hewitt Associates.

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Twenty-percent of large employers say they are very likely to add automatic enrollment features in their 401(k) plans by the end of 2006. Thirteen percent of companies are very likely to add contribution escalation features, and one in five companies (20 percent) plan to add automatic rebalancing of 401(k) accounts.

"Companies that have already implemented automatic features to their 401(k) plans have seen significant results in helping employees save and invest better for retirement," says Lori Lucas, director of participant research at Hewitt Associates. "This is creating momentum and prompting other companies to consider them as well. Automated features change the equation so that inertia around retirement saving and investing works in employees' favor: if an employee does nothing, it is ok because the 401(k) plan is on autopilot."

In addition to automating the 401(k) plan, many companies will continue to educate workers on the value of saving in their plan this year. The majority of companies (96 percent) say they are somewhat or very likely to focus on making sure their employees understand how their 401(k) plan works and the value of it. Nearly two-thirds (64 percent) say they are somewhat or very likely to encourage long-term saving by educating workers on the advantages of preserving their retirement wealth when leaving the company.

In addition, 16 percent of companies say they are very likely to add online third-party investment advisory services to employees.

The majority of companies (79 percent) say they plan to make no changes to their company match. Eight percent say they plan to add/increase the company match, and only 1 percent say they plan to reduce or eliminate the company match.

Only 13 percent of companies say they are very likely to add a Roth 401(k) in 2006. A Roth 401(k) contribution would receive treatment much like a Roth IRA contribution (that is, they would be contributed on an after tax basis, but qualified distributions of those contributions, plus earnings, would be tax-free).

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