The 60th Annual Survey of Profit-Sharing and 401(k) Plans was recently released by the Plan Sponsor Council of America. This particular survey outlines increases noted with regard to key retirement plan trends. The following are worth a closer look.
1. Large plans favor automatic enrollment.
As one of the most celebrated plan design features, 401(k) automatic enrollment, is nearly as old as the 401(k) itself. While it wasn’t always popular and had the moniker “negative election,” the concept has been extraordinarily effective at not only getting, but keeping, workers participating in their workplace retirement plans. Adoption of the feature surged after the passage of the Pension Protection Act.
Only about a third of PSCA survey respondents offered automatic enrollment 10 years ago (35.6 percent). Today, more than half (60 percent) of respondents said they offer it, which is an increase to 70 percent among plans with more than 5,000 participants. That being said, only a third of plans with fewer than 50 workers offer automatic enrollment.
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2. The auto escalation is escalating.
Of those plans that offer automatic enrollment, an astounding three-quarters auto-escalate the deferral rate over time. A decade ago, less than half (49.7 percent) of the plans utilized this feature. However, only one-third of the plans offer auto escalation for all participants; and only one in eight offer this for under-contributing participants. Another third of the plans offer auto escalation only if the participant so elects.
3. The default remains the same.
While default contribution rates vary, the most common rate remains at 3 percent (with 36.4 percent of companies opting to use this particular rate). This rate originally was chosen because of its size – it’s is small enough that participants won’t be willing to go in and opt out. Not to be overlooked is the second most common default of 6 percent, which is gaining popularity and is reportedly used by 22.2 percent of all respondents.
4. Rise of the Roth.
Almost two-thirds of plan sponsors now provide a Roth 401(k) option compared to 2007 when only 30 percent did. The pre-tax treatment has been the norm for 401(k) plans since their inception in the early 1980s. The Roth 401(k) wasn’t introduced until the Economic Growth and Tax Relief Reconciliation Act of 2001, which didn’t become effective until 2006. The option was originally slated to sunset in 2010. However, participation that was in the single digits a few years ago is now in the 15-20 percent range.
5. There’s still a “what goes in is what matters” mentality.
It’s said that “what’s measured is what matters.” However, despite the growing interest of financial wellness, and an emphasis on outcomes, the way people benchmark success in this survey is by participation.
Nearly 89.6 percent of plans cite participation rate as a benchmark to determine plan success — and even more (93.2 percent) of the largest plans rely on that gauge. Deferral rates were a distant second (72.6 percent), and average account balances ranked third (55 percent). But, what about outcomes? Well, according to the survey, only a quarter of plans overall used “outcomes” as a benchmark, though about a third of the largest plans (33.8 percent) did.
Surveys such as this with a broad range of plan types, providers and perspective provide a great overview of where your company has been and where it needs to be with regard to your retirement plan. Email Rea & Associates to speak with a member of our retirement plan administration services team to find out what trends might benefit your company and employees. Or you can call me directly at 614.923.6573.
By Andrea McLane, QKA (Dublin office)
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