Something to be Thankful for in your 401(k)
With Thanksgiving approaching this week, we thought this article, ‘Something to be thankful for in your 401k account’ would be fitting to share.
You don’t have to look far for evidence that Americans aren’t saving enough for retirement. But here’s a positive sign: Employers – at least the biggest ones that typically set the trends – are providing more generous matching contributions to employees in their 401(k) accounts these days.
If you don’t believe me, ask Aon Hewitt, a human resources consulting firm that also serves as a record-keeper for 401(k) plans. According to a recent survey of more than 400 large companies, the most common matching formula is now one dollar for every dollar employees contribute, up to 6% of pay. Previously, the most popular approach was to match 50 cents for every dollar employees contribute, up to the same 6% threshold.
“In the 20 years we’ve been doing this study, this is the first time we saw the most common match increase” in generosity, says Rob Austin, director of retirement research at Aon Hewitt. Currently, 19% of those surveyed use the dollar-for-dollar approach, up from 10% in 2011, the last time the survey was done. Overall, Hewitt says, 98% of the employers it surveyed provide some type of matching contribution.
Why the growing generosity? To some extent, Austin says, the rise in employer matches reflects the continued trend of large companies freezing defined-benefit pension plans. To partially compensate employees, they’re putting more money into their 401(k) plans. (It’s also worth noting that not all employers are following the trend; as Amy Hoak recently wrote for Encore, some have moved in the opposite direction, requiring employees to save more to get their full match.)
Job seekers, Austin adds, should view the 401(k) match as a form of compensation and be sure to take it into account when weighing a job offer.
Whatever the cause, it appears to be part of a broader trend towards greater paternalism on the part of 401(k) plan sponsors. As employees continue to struggle to adjust to a world in which they are responsible for their own retirement security, “employers are increasingly taking bolder actions to help ensure participants achieve greater financial security,” says Aon Hewitt.
For example: 76% of plans now allow workers to begin making contributions to their 401(k)s immediately upon hire, up from 71% in 2011 and 45% in 2001. “Providing new hires with immediate eligibility helps ensure they don’t lose ground in terms of saving,” says Austin.
In another interesting trend, the share of employers that allow Roth 401(k) contributions has increased from 11% to 50% over the past six years. Among those with Roth 401(k) options, 27% allow in-plan conversions, with another 16% planning to introduce that feature within the next year.
Still, not all is rosy for 401(k) participants. Mr. Austin says employers need to do more to raise the default contribution rates for the employees they automatically enroll in their 401(k) plans. Among the nearly 60% of plans that use auto-enrollment, half set default savings rates below the matching contribution threshold – an approach that “tends to result in higher participation levels, but lower overall savings levels,” Aon Hewitt says in a news release.
Moreover, 14% of all assets in plans are held in company stock – a level that has remained constant over the past several years and is too high, given the risks involved in single stock positions, Aon Hewitt says.