Human Resources: Even High-Wage Earners Not Particiapting in 401(k) Plans, Watson Wyatt Analysis Finds

WASHINGTON, March 6, 2007 — The challenge that employers face in getting
workers to participate in 401(k) plans isn’t limited to young and
lower-paid employees. At many large companies, even some older and
high-earning workers fail to enroll in the prevalent retirement savings
program, according to an analysis conducted by Watson Wyatt Worldwide, a
leading global consulting firm.

In its analysis, Watson Wyatt found that a not-so-surprising 52 percent of
workers earning between $10,000 and $25,000 annually choose not to
participate in 401(k) plans. However, nearly one out of 10 workers earning
more than $100,000 annually also does not participate. Overall, about 70
percent of workers participate in 401(k) plans, a percentage that has held
relatively steady for several years. Watson Wyatt’s analysis is based on
about 300,000 workers at 32 large employers that offer a 401(k) and, in
some cases, a defined benefit plan.

“Despite employers’ ongoing efforts to educate workers on the need to save
for retirement, the bottom line is that voluntary participation in these
types of plans doesn’t work well for everyone, even high earners,” says
Mark Warshawsky, director of retirement research at Watson Wyatt. “It’s
one thing to know how much to save for retirement; it is quite another to
do it.”

Warshawsky notes, however, that participation in 401(k)s could increase in
the future as employers are encouraged by the Pension Protection Act (PPA)
to automatically enroll employees. Some employers are already taking such
steps, and have found that with automatic enrollment, more than 90 percent
of employees participate in the 401(k) plan. While many employers had
hesitated to take this approach before because of concerns about, among
other things, their fiduciary responsibility for investment results, the
PPA may ease this concern, Warshawsky says.

Watson Wyatt also found that employee participation in 401(k) plans does
not guarantee a robust retirement fund. Even for those who participate,
contribution rates tend to be low, especially among younger and
lower-earning workers. Workers earning between $10,000 and $25,000
annually contribute just 6.2 percent of their salary to 401(k) plans, while
workers earning at least $100,000 annually contribute almost 10 percent of
their salary. Some high-wage earners, however, may be restricted in how
much they can contribute because of non-discrimination rules and allowable
legal limits.

Many Workers Not Accumulating Large Balances

Watson Wyatt’s analysis also found that many workers who have been with
their current employer for at least 20 years haven’t accumulated large
account balances in their 401(k) plans. According to the analysis, two out
of three workers who earn $10,000 to $25,000 annually and who have been
with the same employer for 20 years have accumulated less than one year’s
annual pay in their accounts. Even in the $75,000 and higher pay category,
about one out of four workers comes up short of a year’s pay.

“Clearly, many workers don’t start saving soon enough, and even those who
do may not be contributing adequate amounts,” says Robyn Credico, national
director of Watson Wyatt’s defined contribution practice. “The power of
compound interest is often overstated, but failing to contribute to 401(k)
and other retirement plans early in one’s career exacts a heavy toll on
savings 40 years later. Workers who start late will be forced to
contribute significantly more to their 401(k)s to catch up, or may have to
delay retirement or lower their economic expectations. They also may have
to rely more heavily on other sources of income, such as other savings,
Social Security and pensions.”

About Watson Wyatt Worldwide

Watson Wyatt (NYSE: WW) is the trusted business partner to the world’s
leading organizations on people and financial issues. The firm’s global
services include: managing the cost and effectiveness of employee benefit
programs; developing attraction, retention and reward strategies; advising
pension plan sponsors and other institutions on optimal investment
strategies; providing strategic and financial advice to insurance and
financial services companies; and delivering related technology,
outsourcing and data services. Watson Wyatt has 6,000 associates in 30
countries and is located on the Web at www.watsonwyatt.com.

Contact

Ed Emerman, 609/452-5967, eemerman[at]eaglepr.com
Emily Rieger, 703/258-7634, emily.rieger[at]watsonwyatt.com