401(k) and Employer-Sponsored Retirement Plans
March 2003

Introduction & Methodology

WorldatWork first surveyed its members regarding 401(k) and employer-sponsored retirement plans in January 2002, just after Enron Corp.’s high-profile collapse in late 2001. In the year since the first survey, additional events and factors have affected employer-sponsored retirement plans, including additional scandals, economic instability and President Bush’s 2003 retirement account proposals.

In January 2003, 12 months after the first member survey on 401(k), the original respondents and an additional random sample of U.S. members received a second annual survey. Of the 4,190 surveys sent in 2003, 609 responses were received – a 15% response rate, which is typical for WorldatWork member surveys. The demographics of the survey respondents closely matched those of all members, providing assurance that the survey responses are representative of the WorldatWork membership as a whole.

The typical WorldatWork member is at or above the manager level in the compensation, benefits or human resources area of a large company’s headquarters location. The WorldatWork membership represents mostly large organizations: 85% of the Fortune 500 employs a member. Additional information about the respondents to this specific survey, including company size (number of employees) and industries represented, can be found at the end of the report.

Summary of Findings

• In 2003, 91% of employers in the survey offer a 401(k) program to employees. Among this group, almost all (93%) provide some type of matching contribution to the employee’s individual contribution. Similar figures were recorded in 2002.
  
• About three-quarters of all employers in the survey (74%) match employee contributions with dollars only; the remaining employers match with their own company stock only, or a combination of company stock and dollars.
  
• Only 14% of employers place any kind of limit on the amount of their own company stock (as a percentage) an employee can accumulate in a 401(k) account.
  
• Nearly two-thirds (63%) of companies reported their own company’s stock constitutes less than 20% of their employees’ aggregate 401(k) holdings. Only a very small percentage of companies (2%) have their own company stock constituting more than 80% percent of their employee’s aggregated 401(k) plan money.
  
• In 2003, a year after innumerable corporate scandals and a bear run on Wall Street, a majority of respondents indicate “no change” to employee 401(k) participation rates (72%), employee contribution percentages (68%) and investment in their own company stock (68%).

Findings

1. Cash continues to be the most common form of employer 401(k) match.

As in 2002, about three-quarters of respondents in early 2003 indicated their organization uses dollars only – and nothing else – as a match to an employee’s contribution. The 2003 figure is down very slightly from 77% in 2002 to 74% in 2003. Organizations offering “company stock only” as a 401(k) match remained steady at 17%, while 9% of companies in 2003 use a combination of cash and stock in their match, a slight increase from 2002.

Figure 1: What does your company match or contribution consist of?

2. More companies are allowing employees to choose their own company stock for individual contributions.

In 2002, only one-third of companies reported allowing employees to acquire their own company stock through their individual contribution. In 2003, this figure increased to more than 4 in 10 respondents (43%).

Figure 2: Can your employees acquire your own company stock through their individual 401(k) contribution?

Additionally, few companies (14%) place a limit on the amount of their own company stock an employee can accumulate in their 401(k) plan through individual contribution. Of those who do place restrictions, the average limit is 24% of an individual’s 401(k) in their own company stock, down slightly from 2002 when it was 27%.

However, when asked about limits on employee investment in company stock from the combination of individual contributions and company match, more responding companies place a limit on the amount an employee dedicates to company stock. More than one in five (21%) restrict an employee’s holding of company stock and the amount of the limit averages 23%.

3. Fewer companies are limiting how long employees must hold their own company stock in the 401(k).

In 2002, the majority of respondents (56%) indicated they had limitations on the amount of time an employee must hold their own company’s stock in their 401(k) plan. In 2003, this figure declined from 56% to 43%.

In addition, while 51% of companies responding in 2002 indicated a limitation based on the employees’ age (i.e., when employee turns “x” years old), only 34% reported an age limitation in 2003. In 2003, the most common limitation has shifted from age-based to the time period of between one to five years.

Figure 3: If there is a limitation on how long an employee must hold company stock in their 401(k) plan, how long must they hold?

4. Most employer retirement plans are not heavily loaded with company stock.

As in 2002, the majority of respondents in 2003 (63%) reported that their own company’s stock makes up less than 20% of all assets in their aggregated employee 401(k) plan. Because of the large proportion of respondents indicating “less than 20%” in 2002, we split this range into three possible ranges for 2003. (See Figure 5 below.) In 2003, 23% of companies reported their own company stock constitutes less than 5% of their employees’ aggregate 401(k) holdings. Identical to 2002, only a very small percentage of companies (2%) have their own company stock constituting more than 80% of their company’s aggregated 401(k) plan money.

Figure 4: Approximately what percent of all money in your company’s 401(k) plan is in your company’s stock?

5. Changes to 401(k) policies have been slow.

In January 2002, in the immediate aftermath of the Enron debacle, only 12% of responding companies said they had either made or considered making changes to their 401(k) program policies in light of the Enron revelations. One year later, the percentage of employers who have either made changes or are contemplating changes has more than doubled to 26%. However, more than a year after Enron and the other employer-sponsored retirement account scandals, 74% of employers have made no changes.

6. Participation rates, contribution percentages have stayed the course.

In 2003, a year after Enron and a discouraging 12 months on Wall Street, the majority of respondents indicate “no change” to employee participation rates (72%), employee contribution percentages (68%) and investment in their own company stock (68%). However, while those reporting changes in participation rates and contribution percentages are closely split between increases and decreases, those with changes in the amount invested in their own company stock shows mostly a decrease (29% versus 3%).

Figure 5: Please indicate the investment trends of 401(k) participants in your organization during the past 12 months.

7. Nearly 100% of employees have online access to retirement accounts.

Nearly all (97%) of responding companies’ employees have online access to their 401(k) accounts. Of those with electronic access, nearly all (97%) have the ability to make changes to their accounts online. The remaining 3% cannot make changes, but can view balances and reports online.

8. Communication about investing and retirement has increased in the past year.

In 2003, 44% of respondents reported that their organization has increased the amount of communication to employees regarding retirement and investing for retirement during the past 12 months. 56% of respondents reported no change in their amount of communication, but zero companies said they had decreased the amount of employee communication. Among those increasing communication, 73% provided new or additional retirement literature distribution, 70% provided new or additional retirement education events, 43% provided additional retirement resources and 21% provided financial “advice” to employees.

Respondent Demographics

Industry

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