Benefits December 24, 2001

Eligibility, Vesting Requirements Getting Looser

December 24, 2001 (PLANSPONSOR.com) - Plan sponsors may be more paternalistic than is commonly believed and many are liberalizing the eligibility and vesting requirements of their plans, according to William M. Mercer's 2000 - 2001 Survey on Employee Savings Plans.

Reported by

Camilla Klein

Although retirement savings plans are often heralded as a means of attracting and retaining employees, when asked to rank the importance of various goals for their savings plans:

47% ranked as first allowing employees to accumulate assets sufficient to maintain their standard of living in retirement
almost 20% ranked attracting new employees at the top
20% cited retaining current employees as most important
16% said that maximizing their employees’ abilities to save on a tax-deferred basis was of prime importance.

Eligibility

Get more! Sign up for PLANSPONSOR newsletters. 

The survey also examined eligibility requirements, finding that:

almost 70% of the sample have eligibility requirements of three months of service or less
37% offering eligibility immediately after hire, provided age requirements have been met
43% off all plans have no age requirement
19% of plans have immediate eligibility, with no age or service requirements.

Those with eligibility requirements are loosening them. According to the survey, plans easing their requirements over the last three years included:

over a quarter of smaller plans, with assets of less than $50 million
36% of those with assets between $50 million and $100 million
a third of plans with between $100 million and $250 million in assets
almost 40% of those with between $250 million and $500 million
just under half of those between half a billion and a $1 billion in assets
43% of those holding more than $1 billion

The most important reason cited for loosening these requirements is to increase participation, followed by the need to attract and retain employees.

Negative Enrollment

While automatic enrollment is often seen as a way of increasing participation, this method is used by:

only 6% of all surveyed plans
some 15% of larger plans

Of plans with this feature:

three-quarters saw an increase in participation
63% saw improvements in ADP/ACP test results
half said it made their employees more aware of retirement planning.

Vesting

According to Mercer, over the last three years, 15% of the sample has liberalized the vesting requirement for the employer matching contribution – driven primarily by the need to attract and retain qualified employees and the desire to stay competitive.

37% of all plans report immediate vesting
46% have graded vesting
the remainder have cliff vesting.

The sample comprised responses from 252 organizations. The assets of the surveyed plans totaled $125 billion and the average number of eligible employees per plan surveyed was 8,100.