SOURCE: Profit Sharing/401k Council of America

December 08, 2009 11:49 ET

Companies and Participants Remain Committed to DC Plans During Uncertain Economic Times

New Economic Impact Study From the Profit Sharing/401k Council of America Shows Most Companies Maintained Contributions and Increased Employee Education

CHICAGO, IL--(Marketwire - December 8, 2009) - Despite challenging economic times and heavy criticism of the defined contribution system, companies and participants remained committed to their retirement plans in 2008 and 2009. Plan sponsors maintained company contributions, stepped up employee education efforts, and reevaluated plan design features to make plan participation more beneficial for employees.

According to the just-released Impact of Economic Conditions on 401(k) and Profit Sharing Plans survey from the Profit Sharing/401k Council of America (PSCA), more than three-fourths of plan sponsors continued their matching company contributions (76.8 percent) and almost three-fourths continued their non-matching company contributions (73.2 percent). The majority of participants continued to participate in their employer's plan and maintained deferral levels.

More plan sponsors suspended or reduced non-matching company contributions than matching contributions and more large companies (companies with more than 5,000 participants) than small companies suspended contributions. Of companies that suspended matching contributions, almost half (46.7 percent) have restored the match or plan to restore it within the first quarter of 2010, with more large companies (52.7 percent) doing so.

The data also revealed a clear correlation between availability of matching company contributions and participation rates. 72.9 percent of companies that suspended their match experienced a decrease in plan participation versus only 14.4 percent of those companies that maintained matching contributions.

Though some plan sponsors were forced to suspend company contributions in the wake of economic pressures and less revenue, most were not. In fact, 4.7 percent of companies increased their matching contributions. Additionally, although some companies experienced a decrease in plan participation, more companies that did not change their match experienced an increase in plan participation (17.9 percent).

A significant portion of companies that experienced an increase in participation, as well as those that maintained participation levels, stated that it was a result of automatic enrollment. It appears that new hires who were automatically enrolled did not opt out during this tumultuous economic time at higher rates than before and this was a key factor in maintaining and increasing participation rates.

Overwhelmingly, plan sponsors stepped up to help their participants understand market volatility with 54.3 percent increasing their employee education efforts. It is impressive that companies not only stepped up their support of participants while facing fewer resources, but they evaluated the specific needs of their employees and customized their support to meet those needs. Plan sponsors took a variety of steps tailored toward their employee populations including: evaluating adding loans, allowing in-service distributions, allowing hardship withdrawals, changing the vesting schedule, decreasing the waiting period for plan eligibility, and adding automatic enrollment.

The Impact of Economic Conditions on 401(k) and Profit Sharing Plans reports on the 2008-2009 experience of 508 plan sponsors. PSCA conducted a similar study of 403(b) plans. The results of both surveys are available online at

About the Profit Sharing/401k Council of America

The Profit Sharing/401k Council of America (PSCA), a national non-profit association of 1,200 companies and their 6 million employees, advocates increased retirement security through profit sharing, 401(k) and related defined contribution programs to federal policymakers and makes practical assistance with profit sharing and 401(k) plan design, administration, investment, compliance and communication available to its members. PSCA, established in 1947, is based on the principle that "defined contribution partnership in the workplace fits today's reality." PSCA's services are tailored to meet the needs of both large and small companies with members ranging in size from Fortune 100 firms to small, entrepreneurial businesses.

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