Fidelity® Analysis Highlights Positive Impact of Pension Protection Act on 401(k) Plans and Their Participants

Significant increase in auto enrollment and improved asset allocation through lifecycle funds seen at fifth anniversary

Fidelity(R) Analysis Highlights Positive Impact of Pension Protection Act on 401(k) Plans and Their Participants (Graphic: Business Wire)

BOSTON--()--Fidelity Investments®, a leader in helping America’s workforce save for retirement1, today released an analysis of the positive impact of the Pension Protection Act of 2006 (PPA) on both 401(k) plan design and participant savings behaviors2. More than half (51 percent) of Fidelity’s 401(k) participants are now in a plan that offers auto enrollment, up from just 16 percent five years ago, having a dramatic impact on participation rates. Additionally, the percentage of plans defaulting participants into age-based lifecycle funds has soared to 73 percent from just 11 percent.

“The PPA is proving to be one of the most significant legislative initiatives helping American workers save for retirement,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments. “While the PPA enabled sweeping reforms across workplace retirement savings plans for all workers, it has had the greatest impact on younger investors. The auto features have significantly boosted participation among younger workers and have simplified the investing process, giving them a solid start to investing for the future.”

The PPA initially focused on pension plan reforms, but it had far-reaching positive implications for workplace retirement plan design features, such as auto enrollment, default options and in-plan Roth deferrals. The law has made it easier for workplace investors to save for retirement across a number of investment vehicles, including 401(k)s, IRAs, tax-exempt 403(b)s and pension plans.

Plan Sponsors Increase Adoption of Auto Enrollment, Boosting Participation

Since 2006, Fidelity plans that offer auto enrollment have grown to 21 percent, up from just 2 percent five years prior. Among the largest plans of more than 50,000 participants, 63 percent offer the plan design feature. Of Fidelity’s nearly 11.7 million 401(k) participants, more than half (51 percent) are now in plans offering the feature, and it’s boosting participation.

The average participation rate for eligible employees in plans without auto enrollment is 55 percent. However, the rate for eligible employees in plans with it jumps to 82 percent. Auto enrollment is having a powerful effect on younger, eligible employees age 20 to 24 where the participation rate is 76 percent in plans with auto enrollment but only 20 percent in those plans without it.

Lifecycle Funds Helping Participants Ensure Age-Based Asset Allocation

Lifecycle funds such as the Fidelity Freedom Funds3 offer investors a diversified4, professionally managed portfolio based on an anticipated year of retirement. Nearly three quarters of plan sponsors now utilize lifecycle funds as their default investment option, and 16 percent of total 401(k) assets are currently invested in them. In addition, the use of these funds as default options has helped increase the portion of participants with an asset allocation within their age-based lifecycle band to 42 percent, up from 26 percent in 2006. This is most notable with Gen Y5 investors as 63 percent are within their age-based band6.

Roth 401(k)s More Prevalent Over Past Five Years

The PPA allows plan sponsors to offer Roth 401(k) deferrals in workplace retirement plans7. Since 2006 the number of plans offering Roth 401(k)s has grown to 31 percent from 4 percent, and today nearly half of all 401(k) participants are in plans that offer the investment plan feature. Even though participant usage of Roth 401(k)s remains low, it has doubled to approximately 6 percent, up from only 3 percent five years ago. Gen Y investors have adopted Roth 401(k)s enthusiastically, at 9 percent overall.

The PPA provisions are most effective when bolstered by educational guidance. Fidelity continues to invest and innovate in the guidance it provides workplace 401(k) participants. This includes on-site seminars, on-demand workshops, online tools and calculators, phone representatives dedicated to workplace plans, and in-person consultations at the company’s more than 160 investor centers nationwide8.

About Fidelity Investments

Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $3.4 trillion, including managed assets of $1.5 trillion, as of October 31, 2011. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.

Fidelity Brokerage Services LLC, Member NYSE, SIPC
900 Salem Street, Smithfield, RI 02917

Fidelity Investments Institutional Services Company, Inc.
100 Salem St., Smithfield, RI 02917

Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, contact Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest.

Although consultations are one on one, guidance provided by Fidelity is educational in nature, is not individualized and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.

It is your responsibility to select and monitor your investments to make sure they continue to reflect your financial situation, risk tolerance, and time horizon. Most investment professionals suggest that you reexamine your investment strategy at least annually or when your situation changes. In addition, you may want to consult an investment adviser regarding your specific situation.

Strategic Advisers, Inc., a subsidiary of FMR LLC., manages the [Fidelity Freedom Funds][Fidelity Freedom K Funds][Fidelity Freedom Index Funds - Class W].

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© 2011 FMR LLC. All rights reserved.

1 Pensions & Investments’ annual Defined Contribution Record Keepers Survey, Dec. 31, 2010, and Cerulli Edge Retirement Edition, First Quarter 2011.

2 Workplace defined contribution data based on more than 20,600 plans and nearly 11.7 million recordkept participants as of Sept. 30, 2011, and do not include tax-exempt accounts and non-qualified plans, but does include plan data from the Fidelity Advisor 401(k) Program.

3 Fidelity Freedom Funds are designed for investors expecting to retire around the year indicated in each fund's name. Except for the Freedom Income Fund, the funds' asset allocation strategy becomes increasingly conservative as it approaches the target date and beyond. Ultimately, they are expected to merge with the Freedom Income Fund. The investment risks of each Fidelity Freedom Fund change over time as its asset allocation changes. They are subject to the volatility of the financial markets, including equity and fixed income investments in the U.S. and abroad and may be subject to risks associated with investing in high yield, small cap and, commodity-related, foreign securities. Principal invested is not guaranteed at any time, including at or after their target dates.

4 Diversification/asset allocation does not ensure a profit or guarantee against loss.

5 Participants born between 1979 and 1991.

6 The band refers to the area +/- 10% points around the Freedom Fund percent equity rolldown. Holding equity allocations within this band is generally referred to as having an “age-based” equity allocation assuming age 65 retirement.

7 Contributions to the plan are subject to the annual IRS limits. The aggregate of both pre-tax and Roth [401(k)/403(b)] contributions is subject to the annual IRS dollar limit.

8 One-on-one consultations not available to Fidelity Advisor 401(k) plan participants

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Contacts

Fidelity Investments
Corporate Communications, 617-563-5800

Contacts

Fidelity Investments
Corporate Communications, 617-563-5800