NEW YORK, -- Despite increases in 401(k) plan participation, many employees are financially unprepared for retirement, according to the 2005-2006 Annual 401(k) Benchmarking Survey, conducted by Deloitte Consulting LLP (Deloitte Consulting), the International Foundation of Employee Benefit Plans and the International Society of Certified Employee Benefit Specialists. The survey also uncovered notable spikes in time-based lifestyle funds, auto-enrollment and step-up programs as respondents reveal numerous changes in plan design to help improve ease of use, flexibility and versatility for employees.
The 830 participating plan sponsors nationwide revealed that plans with more than 70 percent participation by eligible employees rose to 67 percent versus 63 percent from last year's survey.
Despite these increases, respondents believe the majority of employees are not taking advantage of their 401(k) plans to effectively fund their retirement. A surprising one-fifth of respondents believe that "very few" of their employees either are, or will be financially prepared for retirement, with 65 percent agreeing that only "some" employees will be prepared.
"While the increases in participation are promising, the lack of employee preparedness for retirement is alarming and suggests that there's still plenty of room for improvement in 401(k) plan design and communication, to the extent that employers have made employee retirement security a priority goal," says Leslie V. Smith, a director in Deloitte Consulting's Human Capital practice and the survey's director.
One of the most rapidly growing new 401(k) investment options for respondents is the "time-based lifestyle fund." Approximately 44 percent of respondents reported offering this type of investment option now, up sharply from 28 percent the prior year.
Automatic enrollment also increased significantly. Twenty-three percent of respondents reported automatically enrolling new employees, versus 14 percent a year earlier -- more than a 75 percent increase.
Efforts to boost employee deferrals via "step-up" programs also gained popularity; 16 percent of survey respondents reported now offering step-up programs (as a stand-alone feature), versus only 5 percent in the last survey -- an incredible 300 percent increase.