A new report by Fidelity Investments shows that the Pension Protection Act of 2006 has had a positive impact on both 401(k) plan design and participant savings behaviors. The report found that more than half of Fidelity's 401(k) participants are now in plans that offer auto enrollment, up from just 16 percent five years ago. This has had an enormous effect on participation rates. 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 of workplace investing for 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.
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Since 2006, Fidelity plans that offer auto enrollment have grown to 21 percent from just 2 percent five years prior. Among the largest plans of more than 50,000 participants, 63 percent offer the plan design feature. 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.
The report also found that nearly three-quarters of plan sponsors now utilize target date funds, based on an anticipated retirement year, as their default investment option and 16 percent of total 401(k) assets are currently invested in them. Roth 401(k)s also have become more prevalent in the past five years. Since 2006, the number of plans offering Roth 401(k)s has grown to 31 percent from 4 percent.
Fidelity Investments provides financial services, with $3.4 trillion in assets under administration and $1.5 trillion of managed assets, as of Oct. 31, 2011.
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