Retirement Made Simpler News
June 16, 2011
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In the News
Is Auto-Enrollment a Retirement Savings Cure-All?
Do-it-yourself retirement plan enrollment is out. Employers automatically enrolling employees in their plans is in. And that may be good news for investors, as experts credit the uptick in employers automatically enrolling employees in their 401(k) plans with better-allocated portfolios and more people contributing to their plans. But is automatic enrollment the cure-all that it seems?
Read Catey Hill’s SmartMoney.com Blog
How to Choose the Best Options for Your Company’s 401(k) Plan
Inc.'s Carolyn M. Brown writes that plan design plays a key role: Structure your company 401(k) plan in a way that it encourages the highest amount of savings. Studies show that automatic enrollment and auto-escalation are features that significantly increase 401(k) participation and savings. Automatic enrollment puts workers into retirement plans unless they opt out while auto-escalation increases contributions along with raises in pay unless employees opt out. Allowing for new hires to start contributions from the get-go instead of waiting a year for eligibility also helps in cutting back on lost time for participant savings.
No Evidence of Lost Generation within 401(k) Plans
In contrast to a prevailing notion that most young investors are eschewing the stock market because of the global financial crisis and a decade of weak stock market returns, new Vanguard research shows that this age group in defined contribution retirement plans actually has higher equity allocations than prior generations had at the same age.
Vanguard researchers attributed the study’s findings to the growing use of automatic enrollment programs and the widespread shift from conservative default investments toward balanced options, such as target-date funds (TDFs), in many plans. In addition, more participants in voluntary enrollment plans, particularly those joining in recent years, are choosing to invest in TDFs because of their simplified approach to investing.
- Plan designs that include auto-enrollment and TDFs have eclipsed other factors that can influence portfolio choices and stock market investing, including the market’s past performance and prevailing market events, age, experience, and participant inertia.
- Participants under 30 are the main beneficiaries, primarily because most plan sponsors have implemented automatic enrollment and the use of TDFs as default funds for newly hired employees only, a group that tends to include more young individuals than older people.
Read the News Release
Read the Study, Generations: Key Drivers of Investment Behavior
Study Shows Record-High Participation in Defined Contribution Plans Driven by Automatic Enrollment
More workers at large U.S. employers who are eligible to participate in 401(k) plans are doing so, according to a recent analysis by Aon Hewitt of 401(k) plans it managed for 120 large employers.
- The plan participation rate for eligible employees increased to 75.8 percent in 2010, from 73.7 percent in 2009. The increase appears to be in part due to employer adoption of 401(k) plan automatic enrollment programs, the company says.
- The percentage of large employers with auto enrollment features increased to about 60 percent in 2010, from 24 percent in 2006.
Read the News Release
Loans, Withdrawals and Cash Outs
In a separate report, Aon Hewitt has found that approximately 28 percent of active participants had an outstanding loan against their employer provided 401(k) plan in 2010—the highest level since the firm began tracking this data. The average balance of the outstanding amount was $7,860, 21 percent of these participants' total plan assets.
Read the 401(k) Leakage Study
Learn from Top-Saving Retirees
Employees who retired with ten times their final salary seemed to fare quite well in the years ahead. A new study by Lincoln Financial of these "10-Timers" offers insight into the tactics of these strong savers. Four key strategies: participation in retirement plans, having an investment strategy, using a financial professional and “power” saving—saving much more than normal during periods in their lives when they were able to do so.
Read the Retirement Power Study
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