Aon Hewitt Study Shows Record-High Participation In DC Plans Driven By Automatic Enrollment

from Spencer’s Benefits Reports: In 2010, 75.8% of eligible employees participated in their company’s defined contribution retirement plan, according to a survey of 120 large companies by Aon Hewitt. This rate is higher than in 2009 (73.7%) and is the highest level since Aon Hewitt began tracking this data in 2002.

According to Aon Hewitt, this record-high participation rate was largely attributable to the rapid adoption of automatic enrollment. Three out of five employers automatically enrolled employees into their defined contribution plans in 2010, up from 24% in 2006. For employees who were subject to automatic enrollment, Aon Hewitt’s analysis found that 85.3% participated in their defined contribution plan, 18 percentage points higher than those that were not subject to automatic enrollment. The survey noted that there was only a gradual uptick in participation rates because most companies (85% of those offering automatic enrollment) only automatically enroll new hires.

Participant before-tax contributions averaged 7.3% in 2010 which was the same rate in 2009, but less than pre-recession levels in 2007 of 7.7%. Participants who were subject to automatic enrollment contributed 6.8%, compared to the 7.8% contributed by those participants who actively enrolled. According to Aon Hewitt, this significant gap is due to low default contribution rates among the bulk of employers. More than three quarters of plans (76%) used a default contribution rate of 4% or less.

The survey found that 29.4% of plan participants did not contribute enough to receive the full company match. Those participants who were automatically enrolled were more likely not to contribute enough to receive the full company match (41%) compared to those who proactively enrolled (25%).

The survey also found the following:

  • The average account balance was $76,020 at the end of 2010, while the median account balance was $24,680.
  • The average participant exposure to equities was 67.4% in 2010, up from 66.9% in 2009.
  • When premixed portfolios were available, such as target date funds, 60.1% of the participants were at least partially invested in them and just under half of those using premixed portfolios (46%) were fully invested in a single portfolio.
  • Nearly three in ten participants (27.6%) had a loan outstanding at the end of 2010, the highest in the ten years that Aon Hewitt has been tracking loans.
  • In 2010, 6.9% of workers took a withdrawal from their DC plan, close to the record high of 7.1% in 2009. Among these, 20% were hardship withdrawals.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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