401(k) Plan Sponsors Are Reducing or Eliminating Employer Contributions, but Overall Benefits Budgets Are Increasing, Says Diversified Investment Advisors Survey

PURCHASE, N.Y.--(BUSINESS WIRE)-- The economic downturn has affected corporate spending on employee benefits"”but not in ways one might expect. According to Diversified Investment Advisors' Report on Retirement Plans"”2009, a survey of corporations with 1,000 or more employees, 46% of plan sponsors are planning to reduce or eliminate employer contributions to their 401(k) plans or have already done so. However, the survey also revealed that the incidence of cash balance and 401(a) plans is on the rise.

"The events of the last year have forced many corporate employers to scale back on their 401(k) contributions or cut them entirely, but this does not tell the whole story," explained Diversified vice president Laura White. "We found that those employers that offer a defined benefit plan, as well as those with fewer than 10,000 employees, were most likely to eliminate the employer contribution to their 401(k) plan. In fact, most of the plan sponsors surveyed maintain multiple plans, so employers are still contributing to their employees' retirement in other ways. For example, 46% of 401(k) plan sponsors surveyed also offer a 401(a) plan, 87% have a traditional pension plan, and 51% offer a cash balance plan."

In addition, employers are actually increasing their payroll despite reducing headcount as well as increasing their benefits budgets. According to Diversified's survey, plan sponsors are increasing their benefits budgets to 27.9% of payroll from 26.6%. "Plan sponsors are balancing their need for fiscal responsibility with the needs of their employees," White noted.

Of those employers that still contribute to their 401(k) plan, Diversified's study found that over 90% funded their plan in part with employer contributions, with the majority relying on matching contributions (78%) as opposed to a stated percentage of salary (41%) or a fixed amount (16%). The most common matching formula continues to be $0.50 on the dollar up to 5% to 6% of compensation.

"However, among those that plan to reduce benefits costs in 2009, 37% of plan sponsors said they were more likely to negotiate fees with the provider; 33% will negotiate fees with their advisor; 32% will change the way expenses are paid, presumably by transferring a greater share of the burden to employees, and only 17% said they had planned to reduce their employer contributions to their defined contribution plan," said White. "Our study also showed that four in ten plan sponsors with $10 to $25 million in defined contribution plan assets expect to conduct a due diligence search in 2009 in an effort to ensure they are receiving a good value."

The Report on Retirement Plans - 2009 underscores the continuing trend to shift the burden of retirement saving and investing to the employee and away from plan sponsors. For example, it highlights how 401(k) plans have shifted from being a supplemental source of retirement income to being the primary retirement planning vehicle. Forty-four percent of 401(k) plans have participation rates above 80%, compared to 28% of plans just three years ago.

"Automatic plan features, particularly enrollment, as well as a change in attitude toward retirement savings in general, have contributed to these increased participation rates," White noted. "In fact, nearly two-thirds of employers surveyed have implemented automatic enrollment."

According to Diversified's survey, employee participation rates are 8% higher among employers that have implemented automatic enrollment than among those that have not. But even automatic enrollment does not lead to perfect plan participation, with one-quarter of employees not participating in the plan either because they had opted out or because the plan uses automatic enrollment only for new employees. Forty percent of plan sponsors that have implemented automatic enrollment re-enroll employees who have previously opted out of their 401(k) plan to ensure that all employees are systematically exposed to the opportunity.

Other key findings of Report on Retirement Plans - 2009 include:

• Plans with automatic enrollment tend to have a higher incidence of other account management features such as automatic deferral increases (60%); automatic rebalancing (52%); managed accounts (60%) and investment advice (65%).
• Target date funds have grown in popularity with 55% of 401(k) plans offering these funds versus 37% of plans in 2007. An additional 29% of plan sponsors said they plan to introduce them within the next 24 months.
• Target-date funds may increase participation rates"”66% of plans with target-date funds experience participation rates of 70% or more as compared to 43% of plans without them.
• 401(k) plans are offering fewer funds than in the past. The number of 401(k) plans that offer five or fewer funds has risen to 33% in 2009 from 18% in 2007, while the incidence of plans that offer 10 to 14 funds has dropped to 15% today from 22% in 2007. Despite this, 41% of 401(k) plan sponsors with 1,000 or more employees now offer collective trusts, up from 25% in 2007; 54% offer exchange traded funds; 42% offer inflation-protected securities and 41% offer real estate investment trusts.
• There is an increasing focus on outsourcing functions related to fiduciary responsibility; only 15% of corporate employers with 1,000 or more employees rely on internal staff to research and monitor investment options.
• Forty percent of plan sponsors disclose total fees today; 59% disclose investment management fees; 58% disclose general administrative fees and 47% disclose individual service fees. The majority (75%) disclose fees in participant statements.
• Forty-four percent of plan sponsors say they plan to conduct an education campaign for the specific purpose of helping employees closer to retirement make retirement income decisions in 2009.

"Report on Retirement Plans - 2009 comes at a time of extraordinary volatility on Wall Street, in the regulatory environment and in public opinion. But even during these challenging times, we've seen how much value employers place on the importance of helping their employees save as much as possible and invest wisely for their retirement," White said. "But change breeds opportunity. Our survey shows that plan sponsors are looking for smarter ways to do business when it comes to their retirement plan offerings. By performing more due diligence to find the best providers, services and products, coupled with moves to outsource functions, plan sponsors are finding ways to remain competitive and, at the same time, implement best business practices."


About the Survey

Diversified Investment Advisors' Report on Retirement Plans - 2009 survey was conducted by Diversified Investment Advisors, Inc. and administered by EACH Enterprise, LLC among U.S. companies with at least 1,000 employees. The survey featured responses from 279 individuals responsible for the administration of retirement benefits in their companies. Report on Retirement Plans - 2009 contains data based on the 2008 plan year and focuses specifically on the defined benefit and defined contribution plans of U.S. companies. For a copy of Report on Retirement Plans - 2009 send an email with your contact information to retirementresearchcouncil@divinvest.com.

About Diversified's Retirement Research Council

The Retirement Research Council, the research group of Diversified Investment Advisors, is dedicated to:

• Portraying a comprehensive picture of the private retirement plans market today and in the future;
• Providing retirement plan sponsors and their advisors with comprehensive benchmarking information; and,
• Detailing trends to assist with the strategic evaluation of retirement plans.

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. Providing comprehensive plan administration, investment and communication services for mid- to large-sized organizations, Diversified helps more than 1.5 million participants save and invest wisely for and throughout 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, Utah and Wisconsin. To learn more, visit www.divinvest.com.





Diversified Investment Advisors, Inc.

Wendy Daniels, 914-697-8967

danielw@divinvest.com

or

Kitchen Public Relations

David Norman/Nina Dietrich, 212-687-8999

dnorman@kitchenpr.com

ndietrich@kitchenpr.com

Source: Diversified Investment Advisors, Inc.