Automatic Features Are Driving 401k Plan Participation

PURCHASE, NY, November 26, 2007 -- Automated retirement plan features such as automatic enrollment are driving 401k plan participation rates at U.S. companies, according to Diversified Investment Advisors, Inc.'s just released Report on Retirement Plans – 2007. For example, the number of U.S. companies with 1,000 to 4,999 employees that report a 90% or better participation rate in their company's 401k plan has doubled since 2006.

"Automatic plan features, particularly enrollment, have increased in popularity as a result of the Pension Protection Act (PPA)," said Laura White, vice president of marketing at Diversified. "This, along with automatic deferral escalation and automatic rebalancing has been introduced in recent years to help employees get past the inertia that is common when faced with having to make retirement plan decisions and jumpstart the retirement savings process."

According to Diversified's survey, 62% of corporate plan sponsors implemented or are currently implementing automatic enrollment, a 7% increase over last year, and another 30% reported they are considering making automatic enrollment part of their plan. In addition, twice as many plan sponsors (30% versus 15% in 2006) have or are currently implementing automatic deferral increases. More plan sponsors are also offering automatic rebalancing (31% in 2007 versus 24% in 2006) and managed accounts (37% in 2007 versus 32% in 2006).

Employers are also focused on employee communications as a means to encourage participation, relying on company intranet sites, Web sites and print materials. Report on Retirement Plans – 2007 also revealed that corporate plan sponsors conducted employee meetings (36%), improved their employer match (29%) and offered an enhanced array of investments (28%) to bolster plan participation.

401k plans remain the most popular retirement plan among corporate employers; 80% of employers surveyed now offer one. Plan assets continue to grow as 92% of plans surveyed report assets of $25 million or more, a 9% increase over 2006. Their popularity is due in part to their appeal as a recruitment and employee retention tool, with nearly 90% of employers reporting that their DC plan has had at least some impact on their ability to recruit and retain the most qualified employees. One in four feels it has had a major impact, the survey showed.

"Report on Retirement Plans – 2007 also underscores how much legislation and regulation continue to drive changes to the retirement benefits landscape and strongly influence corporate plan sponsors' decisions. As a result, fiduciary responsibilities and compliance are shaping retirement plan design and offerings among U.S. companies, as well," noted White.

"We expect regulation to continue to shape how plans are designed. For example, this year's survey revealed that as many as 44% of employers offer a money market fund as a default fund for auto enrollees, while, in contrast, only 4% offered a risk-based asset allocation fund as a default. With new Labor Department regulations set to take effect in December 2007 designed to encourage 401k investors to allocate more of their money to stocks, we expect a shift over time toward default funds that are comprised more of stocks," added White.

Diversified's survey finds an increasing level of investment due diligence among plan sponsors, with more than one-third of companies relying on a dedicated investment review committee to select and monitor investment options. More than half of these committees meet quarterly and 28% said they meet even more often (a 9% increase over last year). Further, two in three employers have established a formal investment policy statement to help monitor the performance, risk and style consistency of funds they offer.

Other key findings of Report on Retirement Plans – 2007 include:

• Seventy-six percent of employers offer at least one defined benefit plan, with 70% of those offering a traditional pension plan.
• Virtually one in four plan sponsors is planning to freeze their DB plan within the next 12 months; almost as many say they will reduce plan benefits and another 14% plan to terminate their DB plan altogether.
• With 40% of employers currently offering a 401(a) defined contribution plan, the popularity of these plans has increased since 2004 when only 11% of employers offered them.
• Regarding DC plan annual fees, 39% of companies said they pay less than 20 basis points. An additional 28% said they pay between 20 and 40 points.
• Investment flexibility is important within corporate retirement plans. More than half of corporate plan sponsors look to investment managers other than their record keeper for the majority of their plan assets, while 14% only offer investments from their record keeper's fund family.
• At least one in three employers offer exchange-traded, emerging market and target date funds among their fund options.
• Forty-seven percent of employers plan to improve employee education over the next year while 28% plan to offer investment advice.
• Consolidation among plan providers is decreasing with 16% planning to consolidate their recordkeeping for multiple plan types with one provider (an 8% decrease from last year) and 15% are planning to consolidate investments for multiple plan types with one provider (also an 8% decrease from one year ago).
• Interest in total retirement outsourcing continues to grow, with 29% considering it (a 9% increase from 2006).

"Report on Retirement Plans - 2007 highlights the conflicting demands on corporate plan sponsors – the need to comply with more stringent regulations, costly DB plan administration, and the role that a sound retirement plan plays in recruitment and retention efforts," White noted. "While the tactics vary widely in a changing business environment, the end-goal is the same: U.S. companies are taking proactive steps to meet the challenge, and have made it is a business imperative to help employees save as much as possible and invest wisely for their retirement years."

About the Survey

Diversified Investment Advisors' Report on Retirement Plans – 2007 survey was conducted by Diversified Investment Advisors, Inc. and administered by LIMRA International and FGI Research, Inc. among U.S. companies with at least 1,000 employees. The survey featured responses from 200 individuals responsible for the administration of retirement benefits in their companies. Report on Retirement Plans – 2007 contains data based on the 2006 plan year and focuses specifically on the defined benefit and defined contribution plans of U.S. companies. For a copy of Report on Retirement Plans – 2007 send an email with your contact information to retirementsolutions@divinvest.com.

About Diversified Investment Advisors, Inc.

Diversified Investment Advisors, Inc. is a national investment advisory firm specializing in retirement plans. The company's expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401k and 403(b) (traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and traditional and Roth IRAs. Diversified helps more than 1.3 million participants save and invest wisely for and throughout retirement.

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