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CHICAGO, IL, February 13, 2018 /24-7PressRelease/ --
- More participants made contributions in 2016 - 84.9 percent.
- Roth availability increased again - now offered at 63.1 percent of companies.
- Company contributions increased to an average of 4.8 percent of participants' pay.
- Target-date funds are now offered in nearly three-fourths of plans.
- An average of 22.2 percent of assets are allocated to target-date funds, up from 19.8 percent in 2015.
- Seventy percent of plans retain an independent investment advisor to assist with fiduciary responsibility.
- Sixty percent of plans use automatic enrollment. Three-fourths of those plans automatically increase default deferral rates over time.
Participation rates in Defined Contribution Profit Sharing and 401(k) Plans posted a steady increase in the most recent annual survey published by the Plan Sponsor Council of America (PSCA), a part of the American Retirement Association (ARA). Roth availability has doubled in the last decade and the use of automatic enrollment and auto-escalation have shown consistent, significant increases as well. PSCA is the leading independent source of information and education on qualified retirement plans.
"Company sponsored retirement plans continue to grow participation rates and average deferral rates have held steady," said Hattie Greenan, Director of Research and Communications. "More plan sponsors are adopting features such as automatic enrollment, auto-escalation, Roth 401(k)s, and elections such as target date funds that can help advance the interests of all participants and grow America's retirement savings."
Respondents to the survey report that just more than 90 percent of US employees are eligible to participate in their employer's Defined Contribution (DC) plan.
The average percentage of eligible employees who have a balance in their plan is 88.7 percent, and 84.9 percent made contributions to their plan in 2016. The average salary deferral (pre- and after-tax) for all eligible participants was 6.8 percent. Lower earning participants contributed an average of 6.1 percent of pre-tax pay, while higher-paid participants averaged 7.0 percent.
Investment Offerings and Allocation
Plans offer an average of 19 funds, a number that has remained steady since 2011. The funds most commonly offered are indexed domestic equity funds (87.3 percent of plans), actively managed domestic equity funds (85.3 percent of plans), actively managed international equity funds (83.7 percent of plans), and actively managed domestic bond funds (78.8 percent of plans).
Assets are most frequently invested in actively managed domestic equity funds (22.9 percent of assets), target date funds (22.2 percent), indexed domestic equity funds (13.5 percent), stable value funds (8.1 percent), and balance funds (4.3 percent). The average allocation to target-date funds (22.2 percent of assets), which are offered by 73 percent of plans, is up from only 6.4 percent ten years ago.
The survey found 70 percent of companies retain an independent investment advisor. Twenty percent of plans that use an investment advisor use a 3(38) Advisor (one who has the discretion to make fund decisions) and 36 percent use a 3(21) Advisor (one who provides advice to the employer, but the employer makes the fund decisions).
More than one-third of plan sponsor respondents offer investment advice to participants. Advice was offered by a registered investment advisor (30.8 percent), a certified financial planner (28.8 percent), or a third-party web-based provider (20.2 percent).
Respondents reported that 60 percent of plans have an automatic enrollment feature. This is most common in large plans (70 percent), while only one-third of plans with fewer than 50 participants have automatic enrollment. The most common default deferral is 3 percent of pay. The most common default option is a target retirement date fund, used by 63.7 percent of plans.
The majority of plan expenses are paid by the company with the exception of recordkeeping and investment consultant fees. Forty-three percent of plans are charged a basis points fee for recordkeeping and administration fees, and 34.4 percent of plans pay a flat rate per participant. More than half of companies conduct a formal review of fees annually, and 30.3 percent review them more frequently.
The 60th Annual Survey of Profit Sharing and 401(k) Plans also covers topics such as recordkeeping, monitoring investment policy statements, company stock, plan loans, distribution and withdrawals, participant education and communication, and plan expenses. The report has been redesigned this year with a comprehensive executive summary that examines the 10-year trends of key plan benchmarking data points. To talk with research director Hattie Greenan about the survey's findings, email email@example.com.
About the Survey
PSCA's 60th Annual Survey reflects the 2016 plan-year experience of 590 DC plan sponsors. The full printed survey is available for pre-order (electronic copies are available now).
About the Plan Sponsor Council of America
The Plan Sponsor Council of America (PSCA), a part of the American Retirement Association (ARA), is a diverse, collaborative community of employee benefit plan sponsors, working together on behalf millions of employees to solve real problems, create positive change, and expand on the success of the employer-sponsored retirement system. With members representing employers of all sizes, we offer a forum for comprehensive dialogue. By sharing our collective knowledge and experience as plan sponsors, PSCA also serves as a resource to policymakers, the media and other stakeholders as part of our commitment to improving retirement security for millions of Americans. For more information, visit www.psca.org.
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