Upfront: 401(k) and Profit-Sharing Update

Companies can benchmark their offerings against the results from a survey of 2004 plans.

How many 401(k) and profit-sharing plans used automatic enrollment in 2004? This survey helps companies compare their plans with those of respondents.

What did the average 401(k) and profit-sharing plans look like in 2004? According to the 48th annual survey by the Profit Sharing/401(k) Council of America, more companies are adopting automatic enrollment for their plans, and the number of funds offered to participants is on the rise. Organizations can use survey information like this to help them assess their plan's standing on a number of factors, including employee participation and deferral rates, company contributions, investment options, asset investment, trustees, automated systems, plan loans, and investment education.

The survey polled 1,052 profit-sharing and 401(k) plans, which held assets totaling more than $500 billion and enrolled in excess of 9 million participants. Of the respondent plans, 72 were profit-sharing plans, 520 were 401(k) plans and 460 were combinations of the two.

According to the survey report, in 2004, 77.3 percent of eligible employees held balances in their 401(k) plans. Pre-tax deferrals averaged 5.4 percent of pay for lower-paid workers and 6.7 percent of pay for higher-paid employees. The average organization's contribution was 4.5 percent of payroll. Company contributions were highest in profit-sharing plans (8.2 percent of payroll) and lowest in 401(k) plans (2.9 percent of payroll). These contributions averaged 20.7 percent of total net profit for profit-sharing plans and 8.6 percent of total net profit for 401(k) plans. Most matching contributions were made on a payroll-period basis (63.1 percent of plans), while nonmatching contributions were most often posted annually (69.1 percent of plans).

Other survey highlights include the following:

• The number of funds offered to plan participants averaged 18, up from 17 in 2003. Most commonly offered funds were actively managed domestic equity funds, followed by actively managed international equity funds.
• Automatic enrollment was a feature of 10.5 percent of plans, up from 8.4 percent in 2003. Large plans were most likely to use it (30.6 percent), compared with 0.9 percent of small plans.
• Internet-based plan administration continued to be popular; 92.3 percent of plans permitted participants to interact with their plan through the Internet.
• Plan loans were freely available in 80.6 percent of plans. Where loans were permitted, almost one-quarter of participants on average took advantage of them. The loans averaged $6,368 per borrower.
• Participant investment education was offered through a variety of approaches. The main reason cited for providing plan education was to increase participation (37.5 percent). The tools included:
  
  

  - enrollment kits
  
  - fund performance sheets
  
  - newsletters
  
  - slides
  
  - seminars
  
  - paycheck stuffers
  
  - Internet
  
  - modeling software
  
  

• Investment advice was offered in more than half the plans surveyed, typically through one-on-one counseling (56.3 percent), Internet providers (53.5 percent) and telephone hotlines (34.3 percent).