Benefits January 11, 2008

Participation Increased Via Auto Enrollment, but Savings Rates Low

January 11, 2008 (PLANSPONSOR.com) - An analysis of about 50 plans in Vanguard's recordkeeping system that have adopted automatic enrollment suggests it does improve participation rates, but deferral rates for those using automatic enrollment remains too low to generate adequate retirement savings.
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According to a report on the analysis, “Measuring the Effectiveness of Automatic Enrollment,” by the Vanguard Center for Retirement Research, new employees hired under automatic enrollment designs have participation rates dramatically higher than new employees hired under voluntary enrollment designs (86% versus 45%). Automatic enrollment raises participation rates across most demographic groups, but most significantly among low-wage and younger employees, Vanguard said.

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However, overall plan contribution rates under automatic enrollment fall because many new participants who would have chosen a higher contribution rate under a voluntary enrollment plan design remain at the low-default levels. Four of 10 plans have implemented automatic enrollment designs where total employer and employee contributions are less than 9% of income after five years – a level Vanguard said is too low to generate adequate retirement savings.

The report noted that plans with automatic contribution increase features achieve much higher rates of savings.

Further adding to the problem of inadequate savings, Vanguard’s analysis found new hires in plans featuring automatic enrollment are three times more likely to allocate 100% of their contributions to the default investment fund than new hires in voluntary enrollment plans (67% versus 21%).

Employees are more likely to change plan contribution rates than plan default investments. Vanguard found that after approximately 24 months, 30% of eligible employees remain at the plan default contribution rate and 51% stayed with the plan default investment.

In the Vanguard analysis, more than 90% of plans adopting automatic enrollment implemented it for new hires only. Half of plans automatically enroll employees at a 3% deferral rate, and 22% use a higher initial rate. Half of plans have implemented automatic annual contribution rate increases of 1%. Nine in 10 plans use a life-cycle or balanced fund as the default investment.

The Vanguard report is here .

Benefits January 10, 2008

'Rogue' Medco Programmer Gets 30-Month Jail Term

January 9, 2008 (PLANSPONSOR.com) - A federal judge in New Jersey has sentenced a former computer systems analyst to a 30-month jail term for installing a computer code "logic bomb" on the computer systems of pharmacy benefits manager Medco Health Systems.
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A news release from U.S. Attorney Christopher J. Christie said U.S. District Judge Jose L. Linares of the U.S. District Court for the District of New Jersey handed down the sentence to Yung-Hsun Lin, 51, of Montville, New Jersey.Christie said Lin’s sentence was the longest such federal court punishment meted out for attempting to damage a computer system.

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Authorities charged that Lin’s efforts were designed to wipe out important client data stores on more than 70 Medco servers. Linares also slapped Lin with an $81,200 fine which Lin must pay as restitution to Medco.

According to the announcement, Lin admitted his code was aimed at becoming active on his birthday – April 23. Lin confessed that he first created the malicious computer code in October 2003, when Medco was being spun off from Merck & Co., and he was afraid he may get laid off.

On Oct. 2, 2003, Lin created the logic bomb by modifying existing computer code and inserting new code into Medco’s servers. Lin kept the logic bomb in place after it failed to deploy on April 23, 2004 and renewed it to deploy on April 23, 2005.

Christie praised Medco for bringing the case to the government quickly for investigation and prosecution. “That is the kind of cooperation we need and appreciate from private industry,” said Christie, in the announcement. “Disgruntled or rogue employees are a real threat to corporate technology infrastructures and can cause extensive damage. The results of this prosecution send a message to systems administrators and employees; and industry should feel comfortable and confident in coming to us when just such cases arise.”

Among the databases operated from the affected servers was a critical one maintained and updated regularly by Medco – a patient-specific drug interaction conflict database known as the Drug Utilization Review (DUR). Before dispensing medication, pharmacists routinely examined the information contained in the DUR to determine whether conflicts existed between or among an individual’s prescribed drugs.

Medco servers targeted by the logic bomb contained applications relating to clients’ clinical analyses, rebate applications, billing, and managed care processing.

Further, the servers handled new prescription call-ins from doctors and coverage determination applications, as well as numerous internal Medco applications, including the corporate financials, pharmacy maintenance tracking, web and pharmacy statistics reporting, and the employee payroll input, the announcement said.

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