Combining 401(k) plan enrollment with health benefit selection is proving to be a cure for sluggish participation rates.
Employees at companies that use Bank of America Merrill Lynch as retirement service provider may enroll in their employers' 401(k) plan each year when asked to choose their various health benefit options, said Kevin Crain, head of plan participant solutions at the Charlotte, N.C.-based firm. If already enrolled in the 401(k) plan, they can easily increase their contribution level while selecting their health benefits.
“One of our major challenges is getting participants engaged,” said Mr. Crain, who added he is unaware of other companies integrating 401(k) enrollment with health benefits. “With health enrollment, most employees are engaged, so it's a perfect time to reach out to them about the 401(k) plan.”
The program appears to be working. The 24 plan sponsors using this integrated approach for the last two years have added a combined 438,010 new 401(k) participants, a 140% increase from the previous two-year period, according Mr. Crain. More than 200,000 existing participants chose to increase their contributions by more than 1% over the past two years using this approach, a 177% hike from the prior two years.
“We're continuing to see a lot of interest from clients, particularly from those that are not enamored with auto-enrollment,” he said.
Mr. Crain declined to name plan sponsors that have adopted the health benefit-401(k) enrollment feature.
As of June 30, Bank of America Merrill Lynch had 1,500 plan sponsor clients with 2.8 million participants and $77 billion in total defined contribution assets, according to company spokesman Matthew Card. Bank of America acquired the retirement services unit parent, Merrill Lynch & Co., on Jan. 1.
David L. Wray, president of the Profit Sharing/401(k) Council of America, Chicago, said while many companies coordinate 401(k) enrollment with their overall benefits presentation, he “hasn't seen it tied together like this. It's an interesting way to establish in the minds of employees an annual review of all benefits, and an opportunity to increase contributions.”While Bank of America Merrill Lynch offers automatic enrollment, with 240 clients that use it, Mr. Crain said integrating enrollment with health benefit selection requires less print communication and uses the legally required health benefit selection deadline to impose an annual deadline for 401(k) plan enrollment, prompting employees to make a decision. The program also has helped some plans avert declining enrollment sparked by the economic slowdown, he added.
Most plan executives are searching for alternative approaches to reach employees and plan participants, as adoption of auto-enrollment has slowed down lately. According to a recent survey by Watson Wyatt Worldwide of corporate defined contribution plans that don't offer automatic enrollment, just 1% plan to offer such a feature this year. Another 32% are considering offering it next year, while 67% have no plans to do so.
Automatic enrollment has slowed down because employers who offer a match see a cost increase in making matching contributions — at a time when many firms are suspending their company match, experts say. Many expect adoption to pick up again once the economy recovers.
In the meantime, DC managers and plan executives are increasingly focused on trying to modify employee and participant behavior to save more in their 401(k) plans, said the PSCA's Mr. Wray. “There are always new ideas, special campaigns and programs out there, because if you don't reach the employee the rest (of your retirement program) doesn't really matter.” ?