More employers make 401(k) enrollment automatic

By Aaron Smith, staff writer


NEW YORK (CNNMoney.com) -- You could be contributing to a retirement plan without even knowing it.

That's because an increasing number of companies are offering "opt-out" 401(k) plans that encourage more workers to save.

The percentage of employers that offer automatic 401(k) enrollment has increased dramatically to 38%, according to financial services company Charles Schwab (SCHW, Fortune 500). That's more than seven times the rate in 2005, when automatic enrollment was at 5%.

Automatic enrollment is a system in which companies direct pay from a worker's paycheck into a 401(k) plan, unless the employee explicitly chooses to opt out. The system requires no initiative on the part of the employee.

Of the employers who automatically enroll their workers in a 401(k), some 37% also require automatic savings increases. This type of 401(k) plan might start at 3% for an employee, but the employer automatically adds another percentage point the following year. This practice has more than doubled from 14% in 2006 -- when Schwab clients first implemented the strategy.

At the same time, there has been a dip in matching contributions: 69% of employers who offer a 401(k) plan also provide a matching contribution. That's down from a peak of 76% in 2006.

The report also found that 74% of employers offer advice on 401(k) plans, up from 42% in 2005. (See correction below.)

Schwab Retirement Plan Services, a San Francisco-based provider of about 1.5 million 401(k) plans, compiled this data during the first half of 2010.

The practice of automatic enrollment is important in today's economy as it encourages employees to save for their retirement. This is a particularly difficult thing to do during a recession when money is tight. In fact, based on Fidelity Investments' report that came out last week -- there has been an increase in the number of people withdrawing from their 401(k) savings accounts despite steep penalties.

The report said that hardship withdrawals, which are accompanied by penalties, rose to the highest level in 10 years during the second quarter of 2010. During the same quarter, the percentage of participants with outstanding loans from their 401(k) accounts rose to a record high of 22%.

Correction: An earlier version of this article incorrectly reported the percentage of employers offering advice.  To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,075.17 -38.37 -0.22%
Nasdaq 4,463.57 7.55 0.17%
S&P 500 1,983.63 0.10 0.01%
Treasuries 2.45 -0.01 -0.61%
Data as of 10:02am ET
Company Price Change % Change
Apple Inc 95.56 0.84 0.89%
Microsoft Corp 44.65 -0.18 -0.40%
Xilinx Inc 39.60 -8.55 -17.75%
Juniper Networks Inc... 22.36 -2.46 -9.91%
Facebook Inc 70.04 0.77 1.11%
Data as of 9:46am ET

Sections

Passion fruit, Mexican cinnamon and Ecuadorian cocoa. From coast to coast, entrepreneurs are brewing craft beers that incorporate Latin flavors. More

One recently retired airline worker on Obamacare said his tax credit for 2014 will return him $3,600 for the year, or 23% of his annual income. He's watching the dueling court rulings closely. More

Ladar Levison, the guy behind Lavabit, is launching Dark Mail to encrypt emails so the NSA doesn't even know who's talking. More

Passion fruit, Mexican cinnamon and Ecuadorian cocoa. From coast to coast, entrepreneurs are brewing craft beers that incorporate Latin flavors. More

Court documents show big support from Detroit employees and retirees for a turnaround plan that should help the city emerge quickly from bankruptcy. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.