May 16, 2006

Americans save more for retirement if firms help

By Svea Herbst-Bayliss

BOSTON -- American workers save more for retirement if their employers automatically enroll them in a 401(k) plan, but nearly half of all U.S. employees still do not use these plans, according to a study released on Tuesday.

Human resources consulting firm Hewitt Associates found that the participation rate in company sponsored retirement plans is 14 percentage points higher if companies automatically deposit a chunk of their employees' wages in the plan.

Hewitt, which polls more than 2.6 million employees every year, found that 36 percent of workers who had been at their company less than one year participated in 401(k) plans in 2005 year, compared with 30 percent in 2004. The study attributed the bump to automatic enrollments.

"Employer efforts to automate, simplify and better communicate the 401(k) plan are making positive differences in improving certain employee investment behaviors and raising participation rates among hard-to-reach demographics," Lori Lucas, director of retirement research at Hewitt said.

But despite the improvements, nearly half of the study's participants failed to make any contributions to their retirement plans or did not contribute enough to qualify for matching funds from their employers, the researchers found.

"More companies need to be taking aggressive steps to encourage employees to participate and contribute to the 401 (k) plan," Lucas added.

Many Americans face gloomy retirement prospects as more and more companies abandon pension schemes in favor of letting employees save for their own retirement through 401(k) or other similar plans.

Last week Fidelity Investments, which conducts retirement readiness research twice a year, found that 83 percent of Americans acknowledge that they do not save enough as experts calculate most people will have to get by on 43 percent less money when they stop working full time.

The Hewitt study found that average retirement plan balance rose more than 10 percent to nearly $76,000 last year, as market conditions improved. But the median plan balance is significantly lower at $27,100, the study found.

The study found that only 67.2 percent of eligible U.S. workers saved through company sponsored retirement plans. On average, these workers put about 8 percent of their annual income into retirement plans.

Among the workers who do save in a company retirement plan, one in five don't put away enough to receive the full company "match" on their accounts, the Hewitt study found.