Education of 401(k) Plan Participants Results in Increased Contributions

A 1998 survey of 401(k) plan sponsors, conducted by Buck Consultants, shows that sponsors’ efforts to educate plan participants about 401(k) plans results in increased contributions and less conservative investments by the plan participants. Written communication remains the most widely used method of disseminating information to plan participants, although respondents consider personal communication to be more effective. The most commonly utilized written documents by plan sponsors are summary plan descriptions (SPDs), pamphlets and employee newsletters. Other non-personal communication methods include videotapes for group viewing and PC links to the Internet or company intranet. Personal communication methods include general seminars, one-on-one meetings and financial planning and pre-retirement planning seminars.

Typical 401(k) plan.
The typical 401(k) plan, according to Buck, has a participation rate of 77%, a 12-month waiting period for eligibility, employee matching contributions of $.50 per dollar up to 6% of employees’ salaries, six to nine investment options, a loan provision, and daily valuation. Almost nine-tenths of the sponsors match employee contributions. The average matching contribution rate varies by industry, ranging from a maximum of $0.88 per dollar for the mining industry to a minimum of $0.46 for service organizations. Nearly one-fourth of the 401(k) plan sponsors make discretionary nonmatching contributions, usually based upon profits.

New technologies in plan administration.
New technologies, cost considerations and expanded vendor services have brought forth dramatic changes in the way plans are administered, according to Buck. Seventy-two percent of plan sponsors are using daily valuations, compared to only 59% in 1996. Voice response systems allow sponsors to divert repetitive work and specialized work, such as plan interpretation, to outside vendors. The percentage of sponsors using voice response systems to communicate account balance information has risen to 85% compared to only 35% in 1993.

Buck analyzed survey responses from 765 organizations nationwide, of which 646 organizations currently sponsor 401(k) plans. The plans surveyed had total plan assets exceeding $142 billion, with 43% of the plans having assets of $50 million or more. Approximately one-third of the 401(k) plan sponsors surveyed also sponsor nonqualified defined contribution plans. The most common reasons for offering the nonqualified plans are to make up for the compensation limit and the 401(k) dollar limit.

Cite: The Buck survey is reported at CCH PENSION PLAN GUIDE 26,676.

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