It took a while to get to this point, but after taking time to grow and adapt to the ebbs and flows of the marketplace, the defined contribution retirement plan has finally come into its own. The journey hasn’t been an easy one however, and benefit plan sponsors have had to devote a lot of time and resources to ensuring that plan participants received the education needed to maximize on their investment. But today, according to the Plan Sponsor Council of America (PSCA), it would appear as though the work has paid off.
“Due in large part to plan sponsors and providers educating participants on market volatility, asset allocation, and target-date funds, employees continue to save, and are saving more, in their employer-sponsored plan,” according to reports released by PSCA upon publication of the organization’s 58th annual survey.
The survey reflects the 2014 plan-year experience of 529 DC plan sponsors.
More Money In
The PSCA reports that the plan’s participation rates have remained steady over the last several years with about 88 percent of eligible participants having an account balance, and 80 percent making contributions to the plan. Deferral rates, on the other hand, have grown beyond pre-2008 levels to 5.8 percent of pay for lower-paid employees – up from 5.3 percent in 2013.
Less Money Out
Perhaps just as exciting is the news that the percentage of assets loaned to participants has reached its lowest rate in more than a decade. According to findings, only 14.6 percent of participants have an outstanding loan balance and only 0.7 percent of all plan assets are held in loans. The release states that these rates are the lowest recorded in more than a decade.
“The increase in savings rates by participants and the steady plan participation rates demonstrate that participants value their company’s retirement plan,” said Hattie Greenan, director of research and communications for PSCA, in the news release. “The fact that loan usage has decreased while savings rates increased indicate that education about how plans and markets work is working.”
Providing employees with a retirement is a good move for everybody. Not only will plan participants gain the security they need to manage their own financial future during retirement, business owners can use the plan as part of their tax planning strategy. Not sure where to start? Email Rea & Associates and ask how you could be getting more from your company’s existing retirement plan.
By Paul McEwan, CPA, MT, AIFA (New Philadelphia office)
Are you taking full advantage of your business’s retirement plan?
Listen to Steve Renner, QKA, principal at Rea, discuss the importance of a well-designed benefit plan on episode 14 of Unsuitable on Rea Radio, a weekly financial services and business advisory podcast that challenges your old-school business practices and the traditional business suit culture to help you enhance your company’s growth.