Survey Finds Service Requirements for Joining 401(k) Easing

By Staff Report

Nov. 5, 2009

Employers are improving access to their 401(k) plans, according to a survey released Wednesday, November 4.

The Hewitt Associates Inc. survey of 300 midsize to large employers found that 74 percent of 401(k) plans do not have a service requirement, up from 61 percent in a comparable survey Hewitt conducted in 2007.

In addition, looking at plans with employer matching contributions, 56 percent of plans in 2009 did not have any service requirements for participants to receive the match, up from 44 percent in 2007.

On the other hand, 10 percent of employers have suspended their matching contributions during the past two years, the survey found.

“Companies’ bottom lines were significantly impacted by the financial crisis in 2008. As the last resort, some had to reduce or suspend their employer contribution to 401(k) plans to make ends meet,” said Pam Hess, Hewitt’s director of retirement research in Lincolnshire, Illinois, in statement.

Still, many of those freezes either have been lifted or soon will be.

“That trend has slowed. In fact, many employers have already indicated their likelihood to reinstate matching contributions in 2010,” Hess said.

Employers continue to move away from investing matching contributions exclusively in company stock. Just 17 percent of employers do so, down from 23 percent in 2007 and 45 percent in 2001.

That downward trend coincided with the collapse of one-time energy giant Enron Corp.

Enron matched employees’ deferrals exclusively with company stock and barred employees until age 50 from divesting those shares, leaving thousands to watch helplessly as the value of their shares plunged to virtually nothing.

The survey found a big increase in the number of employers offering an automatic enrollment feature.

Such programs are geared to those employees—typically new hires—who don’t indicate whether they want to enroll in their employer’s 401(k) plan. With automatic enrollment, those employees are enrolled unless they specifically object.

In 2009, 58 percent of employers offered automatic enrollment, up from 34 percent in 2007 and 19 percent in 2005. Of those employers using automatic enrollment, 69 percent default employees into a target-date fund, up from 50 percent in 2007.

The funds are so named because the investment mix is adjusted over time, with a more aggressive allocation for funds with retirement target dates further in the future and more conservative asset allocations for retirement dates that are closer.

A summary of the survey, “Trends and Experience in 401(k) Plans,” is available online at

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail

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