Rise in 401(k) Participation Slight Despite Employer Efforts

LINCOLNSHIRE, Ill. – While the percentage of employees who have enrolled in their company’s 401(k) plans rose to 70.3% in 2004 from 69.8% in 2003, the increase is bittersweet given employers’ efforts to boost participation. According to a study from Hewitt Associates, a human resources consulting firm, 64% of employers said their 401(k) plans were the primary retirement vehicle for employees in 2004, up 55% from 2003. The study’s findings came from 107 large defined-contribution plans with more than 2.5 million employees including 1.6 million active participants. Low-tenure and young workers were more apt not to participate with only 46% enrolled. Forty-six percent of workers ages 20 to 29 participated in the plans in 2004 compared to 66% of those in their 30s and 71% in their 40s. Salary certainly has an influence on participation, the study found. More than 91% of people who earned more than $100,000 annually were enrolled in 401(k)s compared to 60% who earned between $20,000 and $40,000. Only 40% of those earning less than $20,000 were enrolled. Employers may want to consider more plan automation and more investment options that automatically rebalance asset allocation based on a participant’s age, the study said. On the plus side, the average 401(k) balance rose 21% in 2004 to $69,000. Diversification efforts seemed to be paying off – 40% of participants held more than four asset classes, up from 37% in 2003 and 30% in 2002.