NEW YORK -- Increased company matches don't seem to spur employees to join their employers' defined contribution plans, new surveys show.
According to a 1999 survey of plan executives by KPMG LLP, the booming stock market is the most significant factor affecting participation rates.
The other factors, listed in order: increasing wages; health of the economy; employee financial education initiatives; and concerns about the health of Social Security.
Of those surveyed, 98% of the Fortune 1000 companies provide a matching contribution and 57% had increased the match within the past five years.
"I think what really came out is the confirmation that one of the biggest issues for employees and human resources personnel is that people may be participating in large numbers in a 401(k) plan but they still do not understand how investing works and how it will impact on them," said Brian Rivotto, national partner in charge of KPMG's corporate human resources programs.
These findings are similar to those in a recent survey by Fidelity Investments, Boston, of 350 individuals who do not participate in their companies' defined contribution plans.
According to the Fidelity survey, more than 40% of non-participants said they definitely or probably will join their companies' defined contribution plan within one year while an equal percentage indicated they definitely or probably will not join.
The majority of those who said they will participate indicated they will be doing so to build a financially secure retirement. Only 15% cited the employer match as the primary reason, the Fidelity survey revealed.
The problem is faulty education, Mr. Rivotto said.
When new employees are introduced to the 401(k) plan, they get an enrollment kit and are inundated with 10 to 20 choices, Mr. Rivotto said. "People take five minutes to make a decision without looking at what their choices are," he said.
Participants need "better education," not advice, he said.
"The issue is that most employees want to be told what to do, but the employer is not going to cross that line," Mr. Rivotto said. "Employees need to have personalized information but from an employer's point of view, it becomes a cost issue and sometimes it gets lost in the budgetary process."
Still, companies see their 401(k) plan as an important tool for attracting and retaining employees. About 57% of plan sponsors expanded their 401(k) plans to make them more generous in the past five years, the KPMG study indicated.
Fourteen percent of companies initiated a cash balance plan for the same reason. (Close to 56% of the companies indicated they offer a cash balance plan and another 21% stated they are considering adopting such a plan.)
"This is a snapshot of what the biggest companies are looking at for their employees," said Martha Priddy Patterson, director of employee benefit policy for the KPMG compensation and benefits practice. "One of the big concerns is how to educate employees about the value of the benefit."
The KPMG survey was conducted in September at KPMG's Tax Forum `99, which was attended by human resources and tax professionals from multinational corporations. Officials from 55 global plan sponsors responded to the survey, which was conducted over two days.
There has been some movement in the past year or so away from generalized information, Mr. Rivotto acknowledged. Now there are more personalized reports and better software, he said.
"There's a trend of less do-it-yourself and more `here's your situation,' but it's still a huge area of need," Mr. Rivotto said.
These observations are supported by the findings of two other surveys released this year. According to the 1999 survey of the Profit Sharing/401(k) Council of America, Chicago -- reflecting 1998 plan year experience, most companies provide printed materials to individual employees and slightly more sponsors with larger plans use printed materials than the average. In 1998, about 93% of plans with 5,000 or more participants and 95% of plans with between 200 and 4,999 participants use print materials, the PSCA survey indicated.
About 20% of all plans used videos, the PSCA survey showed, and 29% -- mostly large companies --provide modeling software to participants.
However, plan sponsors increasingly are providing materials for self-study on the Internet or an intranet. In 1998, 41% offered education materials on the Internet and 11% did so on an intranet. By comparison, only 31% of companies offered education on either the Internet or an intranet in 1997, the PSCA study indicated. The PSCA survey released in September included 88 profit-sharing plans, 231 401(k) plans with profit-sharing features and 341 401(k) plans. About 24% of the respondents were from plans with more than $100 million in assets.
In Fidelity's recent survey, the principal barrier to participation cited by 67% of respondents was their financial situation. About 38% of the non-participants cited lack of knowledge about retirement savings as their explanation; while 29% indicated the barrier was lack of knowledge about the plan.
