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401(k) auto-enrollment, transparent fees boost employee retirement savings

More workers take advantage of company's 401(k) plan match

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By unbundling 401(k) administration fees to make them more transparent and reallocating them more equitably among plan participants, Zurich North America was able to transition to the lowest-cost mutual fund classes available, ensuring employees maximize their retirement investment returns.

And by implementing automatic enrollment for new hires, participation in the insurer's 401(k) plan has grown from 80.21% at the end of 2013 to 85% as of April 2014.

Since the beginning of the year, the North American unit of Swiss insurer Zurich Insurance Group Ltd. has added 658 new employees, 160 of whom were automatically enrolled in a retirement savings plan if they took no action after 45 days. Another 247 employees enrolled on their own, while 36 opted out of the company's 401(k) plan.

When employees are auto-enrolled in Zurich North America's 401(k) plan, 6% of their salaries are automatically withdrawn from their paychecks and deposited into the target date mutual fund closest to their retirement date. The company matches that contribution up to 6% of a contributing employee's salary.

To comply with U.S. Department of Labor regulations requiring greater fee transparency in 401(k) plans, last summer the insurer “stripped out” the percentage-based investment fees that had been included in certain investments and converted them to per-participant fees, said Dawn Carthan, a company benefits consultant.

As a result of this change, Zurich North America was able to transition to the lowest-cost mutual fund classes available, with the target date fund annual fees falling between 5 and 7 basis points and fees on actively managed funds dropping by 5 to 40 basis points, she said.

“We are continuously looking at any savings in fees, whether it's from the administrative cost savings side or a reduction in the expense ratios,” Ms. Carthan said.

Implementation of auto-enrollment at 6% of an employee's salary was designed to ensure that employees save adequately for retirement, she said.

“We did an analysis of what the new hires who made an affirmative election were setting aside, and more often than not they were going in at 6%,” she said. “So it just made sense if people who were making that election on their own are going in at 6%, why would we start new hires as part of the auto-enrollment process at a lower percentage?”

Moreover, she said, “being new employees, if it's their first paycheck, they haven't really gotten the chance to say, "I can't do 6%; it's such a large amount.'”

In addition to auto-enrollment, Zurich North America's 401(k) plan has an annual voluntary escalation feature increasing the employee contribution by 1% each April, which is when pay raises typically take effect.

However, employees can set it up for any month they choose. In addition, employees can defer up to 85% of their annual bonuses into their 401(k) accounts.

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