Participation Rate Rises Slightly

How does your plan compare?
The average participation rate in 401(k) plans was 82.7% at the end of 2008, according to the 52nd Annual Survey of Profit Sharing and 401(k) Plans by the Profit Sharing/401(k) Council of America. That is a very small increase over the previous year’s rate of 81.9%. Pre-tax participant deferrals averaged 5.5% of pay for non-highly compensated employees and 6.6% for highly compensated employees.

Roth 401(k) feature usage increased.
Roth 401(k) contributions were permitted by nearly 37% of plans, up from 30% in 2007. Of those eligible to make Roth contributions, almost 16% did so, compared to 13% in the previous year.

Auto enrollment gained in popularity.
Automatic enrollment, as expected, continued to be a popular feature: 42% of 401(k) plans used it at the end of 2008, an increase from 36% over the year before. Of all plans that have adopted it, most (84%) applied auto enrollment to new hires only, and 16% used it for all non-participants.

The most common default deferral rate was 3% of pay (57% of plans), and 54% of plans automatically increase the deferral percentage over time. About 60% of plans offer target retirement funds as the default investment option.

Investment options were unchanged.
After several years of increases in the number of options offered, the average number of plan investment options stayed steady at 18 in recent years. The most commonly offered funds were actively managed domestic and international equity, indexed domestic equity and actively managed domestic bond funds.

Other survey results were:
• 52% of plans offered investment advice.
• Immediate vesting in matching contributions was present in 37% of plans.
• 90% of plans permitted hardship withdrawals.
• 24% of plans offered a safe harbor match.
• Almost 85% of plans reported having an investment policy statement.
• 58% of plans offered target-date funds.
• The typical plan had approximately 60% of assets invested in equities.

The survey reflects 2008 experience of more than 900 plans with 7.4 million participants and more than $600 billion in plan assets. Highlights are available at

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.

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