Nearly half of U.S. companies are automatically enrolling workers into 401(k) plans, according to a new Watson Wyatt survey. The poll  also uncovered that the number of employers  that use target-date or lifecycle funds as their default option has increased dramatically in the last few years.

Forty-seven percent of 149 large employers now auto-enroll their employees into their defined contribution plan, while one-third of those that do not currently auto-enroll are pondering the idea, found Watson Wyatt during the March and April 2009 survey.

“While plan sponsors have made progress towards encouraging greater participation, saving and educated decision making, there is still room for improvement,” says Robyn Credico, senior retirement consultant at Watson Wyatt. “Designing the optimum plan is tricky and requires plan sponsors to juggle many factors including overall plan design, investment, communication and governance. However, the potential upside is great and could cause DC plans to emerge stronger from the current economic crisis.”

Nearly all companies (96%), which represent more than 2 million employees across a broad range of industry sectors, have a default investment option. Those companies using lifestyle or target-date funds as their default investments have increased significantly, from 38% in 2006 to 62% today. More than 10% of plan sponsors continue to offer stable-value and money market funds as their default option, despite government regulations that stated the options would not be given fiduciary protection.

Plan sponsors that auto-enroll their workers employ a median initial contribution rate of 3%, with a range from 1% to 7%, according to the survey’s report. Slightly more than half (51%) of the employers that auto-enroll also automatically increase the contribution rate by a certain amount each year for their participants. The final contribution rate is between 3% and 20%, with a median rate of 6%.

Other findings include:

• Having 10 to 14 investment fund options is most common, but 11% of employers offer 25 or more.
• More than one-third (38%) of employers offer company stock as an investment option.

• Investment fees vary considerably. Most funds (57%) have an average investment fund expense between 0.50 percent and 0.84 percent. Larger DC plans tend to pay lower investment fund fees compared with smaller DC plans as 21% of the DC plans with less than $100 million in assets have an average investment fund expense of 0.85 percent to 1.24 percent. Comparably, only 3% of DC plans with $1 billion or more in assets have an average investment fund expense in that range. The study did not address whether funds are actively or passively managed.
• Twenty-two percent of plans witnessed a decrease in recordkeeping fee rates from 2007 to 2008, while 31% of plans with more than $1 billion in assets saw a decrease.

For information on this study, please visit www.watsonwyatt.com/dctrends.