Companies whose 401(k) plans are clients of Charles Schwab are adding features to increase participation and savings, but they’re reducing matching contributions, according to a report.
Data collected in the first half of 2010 by Schwab Retirement Plan Services shows a gradual increase in companies making 401(k) advice available to employees, to 74% as of June 30 from 66% in 2008 and 42% in 2005. Similarly, companies have increased the use of target-date funds — to 76% as of June 30 from 73% in 2008 and 57% in 2005; automatic enrollment —to 38% as of June 30 from 34% in 2008 and 5% in 2005; and automatic savings increases for those also offering automatic enrollment —to 37% as of June 30 from 30% in 2008 and 14% in 2006.
Employer matches to 401(k)s, however, have fluctuated from a high of 76% in 2006 to a low of 67% in 2009. As of June 30, 69% of employers are making 401(k) matches.
Although a number of companies have suspended their 401(k) matches, many are looking to reinstate them, Dean Kohmann, Charles Schwab vice president of 401(k) plan services, said in a telephone interview. “They might not be able to reinstate them back to what it was before,” he said.
He noted that the employer match is the primary reason employees enroll in 401(k) plans and has the biggest impact on where they set their savings rate.
“We typically see 30% to 40% of employees setting the savings rate up to the match,” he said.
He said that when companies suspend or eliminate their 401(k) match, an average of 5% to 10% of participants reduce or discontinue retirement savings. Roughly 2% to 3% increase their savings rate to make up the difference, he said.
He added that 401(k) retirement saving increases to 90% from roughly 60% when companies institute automatic enrollment.