Retirement plan sponsors are implementing significant plan design enhancements, and these improvements appear to be driving recent increases in contribution rates, the results of an analysis of survey data released on January 23 by the Plan Sponsor Council of America (PSCA) indicated.
The “61st Annual Survey of Profit Sharing and 401(k) Plans,” which reflects the 2017 plan-year experience of 605 defined contribution plan sponsors, found that in 2017 plan sponsors were contributing an average of 5.1% of pay to their employees’ 401(k) accounts; and that the average deferral rate of participants increased to 7.1%, up from 6.2% in 2010. The research also showed that plan sponsors have been implementing a series of plan design enhancements that may be supporting higher saving rates, including higher default rates, more generous matches, and earlier plan eligibility.
The survey found that increasing shares of eligible employees are participating in their workplace plan. Researchers noted that the percentage of eligible employees with an account balance has risen by more than six percentage points in the last 10 years. They also pointed out that at 12.2%, the total savings rate reported for 2017 was well within the 10% to 15% range recommended by financial professionals.
The results of the analysis further showed that among the supportive plan design trends are a shift toward more generous matching formulas, with the use of dollar-per-dollar matching of more than 3% of pay increasing by nearly 50% from 24.1% in 2016 to 35.8% in 2017. The survey also found that employers are continuing to adopt automatic enrollment, with 61.2% of plans reporting in 2017 that they were using it to increase enrollment. The findings additionally revealed that in 2017, 60% of automatic enrollment plans were using a default deferral rate of more than 3%, up from less than 30% of plans 10 years ago.
The survey findings also indicated that nearly one-third of plans provided a suggested savings rate for participants in 2017, and that more than four in 10 of these employers suggested a rate of 10% or more. Researchers further observed that the share of eligible participants making catch-up contributions has been growing steadily, and had reached 29.3% in 2017.
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