NEW RICHMOND, Wis. -- A year later, executives with Chiquita Processed Foods LLC have found that instituting automatic enrollment in the firm's $42 million 401(k) plan has perked up its participation rate a bit and raised participants' interest in actively investing in the plan.
In April 1999, after going through a flurry of mergers and acquisitions, Chiquita combined three plans into one, added a company matching contribution for employee groups that did not have one and lessened the eligibility period, in addition to starting automatic enrollment, said Jan Gillis, benefits manager at the company, a unit of Chiquita Brands International Inc.
With automatic enrollment, also called negative election, 3% of pay is automatically deducted from the paychecks of all of the firm's full-time employees unless they specifically opt not to participate in the 401(k) plan. The default investment option is a stable value fund.
The Chiquita plan's participation rate is about 90% now. Before automatic enrollment, participation rates in the various plans ranged from 75% to 90%, Ms. Gillis said.
The reason employees gave most frequently for not participating was that they could not afford it, she added.
Now, the average deferral rate is 6%, she said. It had varied from 3% to 7%, depending on the plan, Ms. Gillis said.
"The company's (education and communication) campaign helped make implementation really smooth," Ms. Gillis said.
And some employees who were enrolled automatically have become actively involved in the 401(k) plan, she said.
"Some of the people have moved off the pedestal from automatic to active," she said.
During the past year, between 23% and 25% of employees were automatically enrolled, she said. Initially, about 10% of those participants moved to active participation, Ms. Gillis said.
The investments in the plan all come from Chiquita's bundled service provider, Strong Retirement Plan Services, Menomonee Falls, Wis. The options are a money market, government securities, growth, growth and income, Standard & Poor's 500 index, The Managers Special Equity, Janus Worldwide and common stock, and a set of two asset allocation portfolios: a moderate and an aggressive.
Strong Retirement executives have seen a lot of interest in automatic enrollment, said Michael Olah, Employee Retirement Income Security Act counsel and consultant with Strong Funds.
"It's a growing number, but not a large number," Mr. Olah said. "It's a very slow process."
Chiquita executives chose to include automatic enrollment as part of a "paternalistic approach," Ms. Gillis explained. "We wanted to try to encourage people to save for retirement as early as they can."
"We're very pleased with the participation," she said. "We would like 100%."
She added: "I don't think it stops with automatic enrollment. We have a responsibility to continue the education process."
For now, however, Chiquita executives are not providing participants with investment advice.