Des Moines, Iowa (Sept. 5, 2003) -- Overall plan 401(k) plan participation among employees of small and medium-sized business jumped 2 percent over last year, according to a report by The Principal Financial Group.

The individual deferral rate rose slightly from 6.3 percent to 6.5 percent of salary. Employees earning between $30,000 and $50,000 per year achieved the highest deferral rate, according to The Principal 2003 Annual 401(k) Report. The report is based on data from its 27, 000 401(k) plan sponsor clients and 1.9 million plan participants.

"Contrary to recent headlines about Fortune 500 companies cutting back on retirement benefits for employees, in the small and medium-sized business sector, the opposite trend is playing out,” said Larry Zimpleman, executive vice president, retirement and investor services at The Principal. “These businesses are at a minimum holding steady and many are actually improving their retirement plan benefits. Further, smaller-company employees…are saving at higher rates than their large company employee peers."

The study showed a strong correlation between plan sponsor matching contributions and high deferral percentages. The employer discretionary match actually increased slightly this year to an average of $0.36 per dollar employee contribution from $0.35, The Principal reported. According to the report, companies with fewer employees tend to have higher participation rates, while larger companies find it more difficult to communicate plan features with employees at multiple locations. The report also noted that some larger plan sponsors may have multiple retirement or savings plans available.

While plan participation and deferral were up overall, the trend didn’t hold for younger employees -- 42 percent of eligible employees under the age of 35 don’t participate in a company-sponsored retirement savings plan, the report said.

-- WebCPA staff

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