Benefits August 18, 2008

Economy, Cost Perceptions Keep Small Biz From 401(k)

August 18, 2008 (PLANSPONSOR.com) - A recent survey of small business owners by SurePayroll found that only one-third of small businesses currently offer 401(k) plans to their employees, and 45% of small business owners do not offer any type of retirement savings plan.
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According to SurePayroll’s research, 48% of small business owners surveyed indicated that the current state of the economy has had a negative impact on their ability to offer 401(k) benefits. Additionally, of those who do not currently offer employees a 401(k) plan, four out of 10 small business owners attribute it to the perceived cost of starting and administering the program.

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Why Knots?

According to SurePayroll, the other main factors working against small business 401(k) savings programs are:

  • Fewer Options – Historically, large companies have had many retirement plans from which to choose. However, vendors offering small business retirement plans tend to offer more limited plans, contributing to the perception that small business plans are generally meant for larger companies, according to the report.
  • Salaries are Down . According to the SurePayroll Small Business Scorecard for July 2008, employee salaries are down 0.3% this month – and with rising costs for items like gas and groceries, coupled with lower salaries, employees are struggling to save, even if their companies offer a savings plan. According to SurePayroll, some small businesses shy away from providing a 401(k) simply because there is no employee interest.
  • Lack of Knowledge Regarding 401(k) Plans . The survey indicates that 66% of respondents felt that offering 401(k) benefits would not attract or retain new employees.
  • Low Returns on Invested Funds . According to SurePayroll, 7% of respondents indicated that 401(k) plans are not attractive because they are currently not yielding worthwhile returns.

Given that small businesses employ an estimated 59 million members of the U.S. workforce, SurePayroll’s analysis concludes that approximately 39 million small business employees do not have access to a 401(k) savings plan and that over 26 million small business employees do not have access to any form of company-sponsored retirement savings plan.

Investing August 16, 2008

Transfers Favor Stable Value, But Contributions Cling to Lifestyle

August 15, 2008 (PLANSPONSOR.com) - 401(k) participants moved assets out of equity into fixed-income investments again in July - a month that saw participant transfers favoring the latter on more than 90% of the trading days.
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According to the results of the Hewitt 401(k) Index, more than $692 million was shifted out of equities into fixed-income asset classes in July – approximately $228 million moved out of large U.S. equity funds, and $208 million moved out of international funds (26% of the outflows). In addition, $144 million was transferred out of balanced funds during the month.  

GIC/stable value funds were the largest recipients of the net transfers, as they have been throughout the first half of 2008 (see  401(k) Participants Follow Move from Equity Trend in June ).   In July, inflows ($659 million) to this asset class represented 83% of the net transfers. Bond funds also received 13% of the net inflows, representing $101 million.   The remainder went to company stock (3.17%), and money market (1.32%).

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Those transfers notwithstanding, overall volumes remained modest in July.   Just 0.05% of account balances were transferred on a daily net basis, and was above “normal” transfer levels on just three of the 20 trading days during the month.   *A “normal” level of relative transfer activity is when the net daily movement of participants’ balances as a percent of total 401(k) balances within the Hewitt 401(k) Index equals between 0.3 times and 1.5 times the average daily net activity of the preceding 12 months.

The combination of transfers and poor market conditions resulted in a decline in overall equity exposure. Only 61.7% of participants’ assets were allocated to equity investments by the end of July, returning to a level last seen in the middle of 2003, according to Hewitt.   At month’s end, nearly a quarter of the assets tracked by the index were invested in GIC/Stable Value, 18.5% in large US equity, while just under 10% were invested in lifestyle/pre-mix offerings.   Among the remaining asset classes, company stock represented 15.55%, international 8.44%, balanced 5.84%, and bond funds, 4.47%.

Lifestyle/pre-mix funds drew most of the new contributions - nearly one in every five dollars contributed, in fact.   Large US equity attracted 17.42%, and GIC/stable value nearly as much (16.94%), while company stock (15.17%) was just behind.   International offerings may have suffered notable transfers out, but still managed to attract just over 10% of July's contributions.  

Considering only participant contributions, 20.89% went to lifestyle/pre-mix funds, 19.27% to large US equity, and 18.66% to GIC/Stable Value.   Of the remaining categories, participants invested 11.26% of their monthly contributions in international funds, 7.07% to company stock, 6.68% to small US equity, 5.46% to bond funds, and 3.65% to balanced offerings.

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