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Money Purchase and Profit Sharing Plans on the Rise as More Companies Freeze Their Traditional Pension Plans, Says New Diversified Investment Advisors SurveyPosted by SEP-SOLO-IRA-401k-ROTH on: 2006-12-27 14:22:48 in category:
Retirement Headlines [ Print | Permalink / 0 Comment(s) ] Automatic Enrollment and Other Automated Features Gain Popularity Among Large Corporate Retirement Plan Sponsors PURCHASE, N.Y.--(BUSINESS WIRE)--While mounting financial pressures have led many corporations to freeze or curtail their defined benefit plans, the pressures to attract and retain top talent while helping employees reach their financial goals for retirement remain. These seemingly divergent business imperatives have led to a dramatic increase in the incidence of 401(a) money purchase plans, such as profit sharing plans funded primarily with employer contributions, according to Diversified Investment Advisors’ recently released Report on Retirement Plans—2006. Specifically, more than one-third (36%) of large corporate employers now offer a 401(a) plan. This is compared to just 12% of companies only two years ago, the survey revealed. “In most cases, these companies are offering a 401(a) defined contribution plan such as a money purchase plan funded with matching contributions to a 401(k) plan not only to help contain the risk inherent in defined benefit plans, but because they remain committed to help fund their employees’ retirement benefits,” said Patrick Kendall, vice president and national practice leader of defined benefit and 401(k) markets at Diversified Investment Advisors, Inc. The Diversified study also found that even before the Pension Protection Act of 2006 provided employers with incentives for offering an automatic enrollment feature as part of their 401(k) plan, 44% of large companies had already implemented auto enrollment for new employees, and in many cases, existing employees. Another 11% of respondents said that they were in the process of implementing this feature at the time the survey was fielded. In addition, corporate sponsors said that they have already implemented or are currently implementing such automated account management features as automatic deferral increases (15%), automated rebalancing (24%), and managed account options (32%). “The goal of such automated features is to help employees move beyond the inertia and procrastination that contributes to low participation levels in their retirement plans,” said Kendall. “In fact, 14% of survey respondents said that the majority of their employees do not participate in the company sponsored retirement plan. With automated solutions such as PlanXpressSM, Diversified’s suite of automated participant services, employers are trying to simplify their employees’ decision making process about saving and investing for retirement, while helping them to achieve a financially sound retirement.” Another key finding of the survey is the fact that even though 401(k) plans have been in existence for over 20 years, employee participation in them continues to increase, with 57% of 401(k) plan sponsors reporting participation rates of at least 70%. This is up from 53% one year ago. One of the factors contributing to greater participation in 401(k) plans is the growing popularity of automatic enrollment. As in previous years, Report on Retirement Plans—2006 also explored the area of total retirement outsourcing (TRO.) While 36% of respondents said they have never considered TRO, 34% said they are either currently considering it, already using it, or are in the process of implementing it. Slightly more (39%) said they are considering it or have implemented total benefits outsourcing (TBO), citing the lower cost of administration as the single greatest advantage. This represents a 6% increase over last year’s TBO findings. But just as plan sponsors continued to make changes to their defined contribution and defined benefit plans in the last year, they are also considering changes to these plans in the next 12 months, according to the survey: * Besides adding investment options (46%) and enhancing participant education (45%), offering investment advice (31%) is a high priority for changes in defined contribution plans in the coming year. This may be especially true because of the popularity of 401(a) plans—more than one-third of plan sponsors offer a 401(a) plan where investments are participant directed. * Nineteen percent of defined contribution plan sponsors indicate that they plan to change providers in the upcoming year, nearly double the average number that change providers in any given year, testimony to the high level of due diligence sponsors are exercising today. * On the defined benefit side, 23% of plan sponsors intend to terminate their DB plan; 28% intend to freeze their pension plan, and another 26% plan to reduce DB plan benefits over the course of the next year. “The new Pension Protection Act will likely have a great impact on the way individuals save and invest for retirement. We are in a truly dynamic market where new legislation and a shifting economy have really begun to initiate change within the retirement plan industry,” said Kendall. “Employers want to make 401(k) plan participation as simple as possible with the help of automated plan features, but the demand for investment advice remains high. In addition, while many employers have backed off of their DB plans, we still see a true commitment by employers to help fund their employees’ retirement plans with the help of money purchase plans,” he added. “These objectives require retirement plan providers to not only respond to, but anticipate plan sponsors’ needs. Report on Retirement Plans—2006 underscores the demands placed on both plan sponsors and providers.” About the Survey Diversified Investment Advisors’ Report on Retirement Plans—2006 survey was conducted by Diversified Investment Advisors, Inc. and administered by LIMRA International and FGI Research, Inc. among U.S. companies with at least 1,000 employees. The survey featured responses from 233 individuals responsible for the administration of benefits at their firm. The study oversampled firms with 10,000 or more employees. Data represented in this report is weighted to represent the overall population of businesses with 1,000 or more employees. Of those companies surveyed, all offer a defined contribution plan and 156 offered a defined benefit plan. Report on Retirement Plans—2006 contains data based on the 2005 plan year and focuses specifically on the defined benefit and defined contribution plans of U.S. companies. About Diversified Investment Advisors, Inc. Diversified Investment Advisors, Inc. is a national investment advisory firm specializing in retirement plans. The company’s expertise covers the entire spectrum of defined benefit and defined contribution plans, including: 401(k) and 403(b) (Traditional and Roth); 457; non-qualified deferred compensation; profit sharing; money purchase; cash balance and Taft-Hartley plans; and rollover and Roth IRA. Diversified helps more than 1.4 million participants save and invest wisely to and through retirement. Headquartered in Purchase, NY, the company’s regional offices are located in Arkansas, California, Illinois, Iowa, Louisiana, Maryland, Massachusetts, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas and Wisconsin. To learn more, visit www.divinvest.com. |
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