Forty-six percent of the 1,000 corporations polled in a recent survey said they plan to reduce or eliminate employer contributions to their 401(k) plans or already plan to do so, even as their overall benefit budgets increase.

The report on retirement plans by Diversified Investment Advisors found that the incidence of cash balance and 401(a) plans is on the rise despite cutbacks in employers’ 401(k) contributions.

“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,” said 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 percent of 401(k) plan sponsors surveyed also offer a 401(a) plan, 87 percent have a traditional pension plan, and 51 percent 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 percent of payroll from 26.6 percent.

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

Forty-four percent of 401(k) plans have participation rates above 80 percent, compared to 28 percent of plans just three years ago. Employee participation rates are 8 percent 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.

For more information, visit www.divinvest.com.

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