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401(k) plans now offer a wide range of features to plan participants.
Since their inception in the early 1990s, defined contribution, and specifically 401(k) plans, have gener ally been under the direction of the benefits or human resources departments of sponsoring companies. Today, however, responsibility for oversight of 401(k) plans is shifting. In the past three years, the average employee account balance has more than doubled from $31,000 in 1993 to more than $65,000 in 1996. With this level of assets at stake, more and more companies are putting the treasury or finance area in charge. This article explores current trends in 401(k) plans and the role of the plan sponsor from a treasury management viewpoint.
Plan Sponsor Trends
Trends in 401(k) plan design can be described in three words: More. Better. Faster.
Daily valuation updates account balances every day the markets are open, enabling participants to call to get their current account balances based on prior-day market prices. In the past two years, the percentage of plans featuring daily valuation has nearly doubled, from 20 percent to nearly 40 percent. In that same timeframe, the trend in transfer frequency has also gone to daily. An increasing number of plan sponsors are allowing employees to transfer among investment options on a daily basis.
The number of investment options offered by 401 (k) plans is also increasing. Participants are demanding more choices and plan sponsors are responding. Two years ago, the average number of investment options available through 401(k) plans was four. Today, the average is 6.2 and growing. More than 10 percent of 401 (k) plans offer 10 or more investment options.
Two additional developments are making 401(k) plans better for participants: matching contributions and loan features. More companies are offering both. As more employers are eliminating or decreasing the monies they put into defined benefit pension plans, many are moving those monies into a company match to entice employees to participate in their 401(k) plans. Matching contributions give participants an immediate return on their investment. Loan features are popular and powerful in convincing younger employees to participate. More than 80 percent of plans now offer loans as a way to give participants access to their money before they retire.
Administration
A key...