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Responding to Recession

Responding to Recession | Human Resource Executive Online A recent study reveals a multi-faceted response by employers to the impact of the recession on retirement plans.

Saturday, May 2, 2009
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The number of employers adopting premium retirement features, such as automatic enrollment and company matches, has plateaued in response to the economic climate, according to a recent survey by Hewitt Associates, a global human resources consulting and outsourcing company based in Lincolnshire, Ill.

Instead, employers are focusing efforts on offering more lower-cost strategies, such as automatic rebalancing and target-date funds in an effort to mitigate immediate cost pressures and stay fiscally responsible, according to Hewitt.

The annual survey of about 150 mid- to large-sized employers reveals that half (51 percent) currently offer automatic enrollment (up from 44 percent in 2008). However, among the companies that don't currently offer the feature, only one-quarter (25 percent) are somewhat or very likely to add it for new hires, and just 15 percent are likely to adopt it for existing employees in 2009, down from 57 percent and 27 percent, respectively, in 2008.

Of those companies not planning to add automatic enrollment, more than half (55 percent) cited the increased cost of the employer match as the primary reason why they did not plan to offer it, which is up nearly 10 percentage points from 2008.

Some employers may opt to take an even more drastic cost-cutting step, choosing to eliminate their company match in the coming year.

Although a few high-profile companies announced 401(k) match cuts in 2008, Hewitt's survey shows that just 2 percent of employers have cut or temporarily suspended 401(k) company matches since the markets tumbled, and 5 percent expect to do so this year.

Depending on the duration and depth of the current recession, however, Hewitt believes it is possible that upwards of 10 percent of companies could potentially take that step in the coming 12 to 18 months.

While companies are making these cutbacks to keep their bottom line in the black, they are also aware of the financial hit their employees' retirement savings have taken during the market tumble. As a result, companies are turning to lower-cost tools designed to help their employees not only make smart investment choices, but also to continue to save wisely through volatile market conditions.

According to Hewitt's survey, more than three-quarters (77 percent) of employers now offer target-date funds -- up from 66 percent last year -- and among those that do not currently offer them, more than half (53 percent) plan to add the funds in 2009.

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In addition, about half (49 percent) of companies offer automatic rebalancing -- a tool that helps employees regularly balance their portfolios with their target allocations -- and another 20 percent are likely to add the feature in 2009.

Other Key Findings in the Study:

* Two-thirds (64 percent) of employers plan to benchmark 401(k) plan administration and procedures to best practices, and more than half (58 percent) are likely to review their plan governance structures (committee structure, fiduciary ownership, processes and procedures).

* About three in 10 (29 percent) companies currently offer a Roth 401(k) to their employees, up from 19 percent in 2008. Among those companies that do not currently offer a Roth 401(k), 12 percent said they are very likely to add one in 2009.

* One-fifth (20 percent) of companies currently offer managed accounts. Of those companies that do not currently offer them, 19 percent said they are very likely to offer them in 2009.

* More than half (53 percent) of employers currently have some form of contribution escalation in their defined-contribution plans, and one-third (33 percent) said they are very or somewhat likely to offer it in 2009.

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