Companies Help Employees Increase Retirement Savings

Employees do listen to their employers after all. According to a study recently released by Hewitt Associates, a human resources firm, efforts by companies to help U.S. employees save for retirement -- including putting the 401(k) plan on autopilot, simplifying plan choices and targeting communication -- have resulted in improvements in employees' retirement saving and investing behaviors.

The study, which looked at the savings and investing patterns of more than 2.6 million employees who were eligible for 401 (k) plans, found that 36% of workers with less than one year of tenure participated in a 401(k) plan in 2005, an increase of 6 percentage points from the prior year.

Among companies that offered automatic enrollment, the overall employee participation rate was 14 percentage points higher than the overall employee participation rate across all companies.

The study also revealed improvements in overall employee behavior around diversification, company stock and the use of lifestyle funds.

However, almost half of those studied did not participate in their 401(k) plan or failed to contribute enough to obtain the full company match.

"Companies that automatically enroll new hires are seeing a big difference in the behavior of lower-tenure workers in 401(k) plans," said Lucas. "But to make an impact on overall participation and contribution levels, companies need to be thinking about offering automatic enrollment to all employees or combining it with tools like streamlined enrollment and targeted communication. Companies that already offer automatic enrollment should think about ways to further encourage employees to save for retirement, such as adding contribution escalation features, offering third-party investment advice, or providing tools that help employees better understand the value of their 401(k) plans."

Hewitt's research also showed a slight improvement in employees' overall 401(k) investing habits, particularly around their use of lifestyle and lifecycle funds. While the use of lifestyle and lifecycle funds increased, Hewitt's study showed employees have decreased their investments in company stock. Although it continued to remain the single largest holding for employees in 401(k) plans that offer it, the average investment in company stock decreased from 26.5% in 2004 to 21.9% in 2005. In addition, the number of employees holding half or more of their 401(k) balances in company stock decreased from 27% in 2004 to 20%.

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