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Employers To Step Up Risk Control Of Retirement Plans: Hewitt

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Risk management and automation are among retirement benefit issues employers are likely to focus on this year, a new report says.

Among changes making an impact on retirement plans this year are recent legislation, tighter reporting and funding, and the gradual shift of risk from employers to employees, according to a new survey by Hewitt Associates, Lincolnshire, Ill., a human resources consultant and administrator.

Hewitt’s study of 190 mid- to large-sized U.S. companies finds new funding rules for pensions and increased scrutiny of retirement plans, in general, are prompting more companies to take extra steps to manage risks for their plans in 2008.

Among companies offering pension plans, 63% said they are very likely to perform funding and accounting projections, 30% plan to perform an asset liability study and 29% are very likely to assess the risks that their pension plans are running based on current strategies.

Among companies offering a defined-contribution plan, 55% intend to review their fund operations including expenses and revenue sharing. Also, 35% say they are very likely to review their 401(k) plan governance structure or hire a third-party monitor to review their investment options, in order to meet their fiduciary responsibilities.

At the same time, 56% rank employees’ taking accountability for retirement as a high priority this year, and 50% plan to focus on helping employees better understand their retirement benefits.

Much of their efforts will be carried out through communications with 66% of employers saying they are very likely to undertake a communication program on 401(k) plan participation, and 64% are likely to communicate to their employees about diversification and fund usage. In addition, 58% plan to focus their communication efforts on 401(k) contribution levels.

The pace at which employers are modifying their defined-benefit plans will slow considerably this year, with 72% of companies that offer a pension plan saying they will make no changes to those plans in 2008, compared with just 41% saying so last year. Only 3% said they are very likely to close their plans, down from 6% in 2007, and 2% said they are likely to freeze their plan, down from 4%.

This year, 44% of companies offer automatic enrollment to their employees, compared with 36% in 2007. Among those plans that do not currently offer automatic enrollment, 30% said they are very likely to offer it in 2008, while 27% are somewhat likely.

Among those companies that offer automatic enrollment, 72% plan to convert their default investment fund to a premixed portfolio fund.

In addition, 44% have a form of contribution escalation in their 401(k) plans, up from 31% in 2007. Hewitt found 22% offer contribution escalation as part of automatic enrollment, and 8% of those companies that do not offer the feature plan to add it as a default under automatic enrollment.

Hewitt also found 19% of employers currently offer a Roth 401(k) to employees, up from 12% in 2007. Among those that do not currently offer a Roth 401(k), 11% said they are very likely to add one in 2008.

Hewitt found 71% plan to make no changes to their company match, while 12% plan to add or increase a company match, and just 2% plan to cut or eliminate their match.

In addition, 43% of employers currently offer online third-party investment advisory services and another 47% plan to offer them in 2008.


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