Participants in 401(k) plans of moderate means aredeferring more of their pay to retirement plans than ever before,according to the Plan Sponsor Council of America’s 58thAnnual Survey.

|

A “non-highly compensated” employee, an IRS classification,includes anyone making below $115,000 a year.

|

The cohort averaged a 5.8 percent deferral rate in 2014, up from5.3 percent the previous year, about where the average has hoveredsince 1997.

|

Read: DC versus DB: 4 views on new EBRIdata

|

What’s more, the group is closing the gap on highly compensatedcounterparts, whose average pre-tax contribution was 6.9 percent ofpay.

|

The survey shows that almost all full-time employees—99percent—are eligible to participate in their employer-offered plan.An average of 80.5 percent of eligible employees made contributionsto plans in 2014.

|

When considering all employees—full and part-time, and salariedand wage earners—90.9 percent of all employees at the respondentcompanies are eligible to participate in their company’sDC plan. About 70 percent of plansallow part-time workers to participate.

|

The PCSA survey took the pulse of 592 plans—263 were 401(k)only, another 324 combine a profit sharing plan, and five onlyoffered a profit sharing plan—that included 8.8 million eligibleemployees and $785 billion in plan assets.

|

|

Sponsors are also chipping in a bit more to employee accounts.The average 401(k) contribution was 3.2 percent in 2014, up form2.9 percent in 2013. In plans that combine a profit sharing plan,the average employer contribution was 5.5 percent.

|

Of all plans, 95.6 percent made employer contributions.

|

The survey says employer contributions are set by a variety offormulas. About 43 percent use a fixed-match formula: 39 percentmatch half of employers’ contributions, most commonly capped at 6percent of deferrals; almost 35 percent are making adollar-to-dollar match up to a four, five, or 6 percent cap ofemployee deferrals.

|

For all types of plans and all plan sizes, total contributionsaveraged 19 percent of company earnings. In 401(k) plans, employercontributions averaged 12.3 percent of net profits.

|

PSCA’s nearly 120-page report is among the most comprehensivesummaries of the defined contribution industry.

|

Hattie Greenan, director of research and communications at PSCA,is bullish on what this year’s data means for the value of 401(k)plans to the country’s retirement landscape.

|

"The data shows that the private, voluntary, employer-sponsoreddefined contribution system works well for both companies andparticipants,” Greenan told BenefitsPro.

|

“Part of what works well is the flexibility the employer has todesign plans to meet the unique needs of the company and itsspecific employee population,” she added.

|

Taking into account average participant and employercontributions, a good portion of non-highly compensated employeesare contributing 9 percent of salary annually, inching them closerto the often-cited 10 to 15 percent benchmark recommended by manyretirement experts.

|

|

While that success is notable, it also underscores the savingchallenges faced by the estimated 50 percent of the workforcewithout access to a workplace plan, and the challenges industryfaces in reaching those business owners.

|

“Expanding access to plans starts with making it easier forsmall businesses to offer plans to their employees, not throughmandates or more regulation," said Greenan.

|

More than 52 percent of plans now incorporate and automaticenrollment feature, but there is wide disparity relative toplan size.

|

Almost 70 percent of plans with more than 5,000 participantsdeploy an auto-enroll feature, while only 19 percent of plans with fewer than 50participants do so.

|

The most common automatic deferral rate is 3 percent, but morethan 40 percent of sponsors are now defaulting workers in at morethan that.

|

Plans with auto-enrollment have a participation rate that isabout 10 percent higher, according to the survey. Deferral ratesare reportedly equal between auto- and self-enrolledparticipants.

|

The average plan menu included 19 fund options. Seven in 10plans offered a target date fund, with 15.8 percent of all planassets allocated to them, on average. That’s up from the average of4.5 percent of plan assets invested in TDFs in 2007.

|

Almost 65 percent of the target-date funds used are activelymanaged. Sponsors chose TDFs as the qualified default investmentalternative about 74 percent of the time.

|

And managed accounts are now offered in 33.7 percent of plans,though they are chosen as the QDIA only 8.5 percent of thetime.

|

Only 9.1 percent of plans offered a lifetime income option toparticipants.

|

Investment advisors were used by 69.5 percent of sponsors.

|

Of those that did seek a plan advisor, 62.8 percent ofsponsors were charged a fixed fee, and 31.9 percent were charged asa percentage of plan assets.

|

Company stock was offered in 14.3 percent of all plans and heldan average of 17.7 percent of plan assets.

|

And 6.6 percent of plans have more than 50 percent of planassets in company stock, down from 17 percent of plans with as much10 years ago.

Complete your profile to continue reading and get FREE access to BenefitsPRO, part of your ALM digital membership.

  • Critical BenefitsPRO information including cutting edge post-reform success strategies, access to educational webcasts and videos, resources from industry leaders, and informative Newsletters.
  • Exclusive discounts on ALM, BenefitsPRO magazine and BenefitsPRO.com events
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.