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December 26, 2011

Fidelity Studies Impact of Pension Protection Act

Fidelity Investments  says recent analysis of the Pension Protection Act of 2006  found that  more than half (51 percent) of the nearly 12 million 401(k) participants in its plans are in a plan that offers auto enrollment, up from just 16 percent five years ago. Also, the percentage of plans defaulting participants into age-based lifecycle funds has soared to 73 percent from just 11 percent.

“The PPA is proving to be one of the most significant legislative initiatives helping American workers save for retirement,” said James M. MacDonald, president of workplace investing for Fidelity Investments, in a statement. “While the PPA enabled sweeping reforms across workplace retirement savings plans for all workers, it has had the greatest impact on younger investors. The auto features have significantly boosted participation among younger workers and have simplified the investing process, giving them a solid start to investing for the future.”

The average participation rate for eligible employees in plans without auto enrollment is 55 percent. However, the rate for eligible employees in plans with this feature is 82 percent. Among younger, eligible employees age 20 to 24, the participation rate is 76 percent in plans with auto enrollment but only 20 percent in those plans without it.

Fidelity’s analysis also found that roughly three quarters of plan sponsors utilize lifecycle funds as their default investment option, and 16 percent of total 401(k) assets are currently invested in them. In addition, the use of these funds as default options has helped increase the portion of participants with an asset allocation within their age-based lifecycle band to 42 percent, up from 26 percent in 2006. •

 

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