Employee participation and deferral rates in America’s qualified retirement plans remained strong in 2015. In fact, participation was up 5% from 2010, and average salary deferrals were nearly 7%.
These trends show marked improvement in defined contribution (DC) plan uptake by U.S. workers, thanks to plan sponsors who’ve implemented plan designs intended to help improve participants’ retirement readiness and outcomes. Features such as automatic enrollment, target date funds and Roth 401(k)s have all been instrumental in enticing employees to enroll in employer-sponsored retirement plans and increase their savings rates.
Eligibility, Participation Hits Encouraging Highs
These are just some of the positive findings from a recent survey, which reflects the 2015 plan-year experience of 614 DC plan sponsors. The survey shows plan eligibility has reached encouraging levels, with nearly 90% (89.4%) of U.S. employees now eligible to participate in their employer’s DC plan.
Almost 82% (81.9%) of eligible workers made contributions to their plan in 2015 — again, up 5% from 2010 — and 87.6% of eligible employees had a plan balance. Among eligible participants, the average salary deferral rate was 6.8% (pre- and after-tax).
Contributions and Other Costs
The survey found that the average employer contribution to 401(k) plans was 3.8%, and 5.4% for combination 401(k)/profit sharing plans.
Nearly 67% (66.8%) of retirement plan sponsors retained an independent investment adviser. With the exception of investment consulting and recordkeeping fees, companies pay a majority of plan expenses.
The average retirement plan investment menu consists of 19 funds. That figure has held steady since 2010. Indexed domestic equity funds are the most commonly offered option, with 79.3% of plans including them in their investment lineup. Plans also tend to offer mostly actively managed options, including a mixture of domestic equity (78%) and international equity (73.4%) funds, as well as domestic bond funds (74.4%).
Actively managed domestic equity funds captured the lion’s share of assets (21.4%). Target date funds were a close second, with 19.8% of assets being allocated on average — up from only 4.1% 10 years ago. Sixty-three percent of plans offer target date funds as an investment option.
Automatic Features Boost Savings
Automatic enrollment was offered in 57.5% of plans, and large plans were more likely to have it (66.7%). The deferral rate was more than 3% in over half of plans with auto enrollment, up from 40.4% of plans in 2014. Target date funds remain the most common default option. Slightly more than 34% of plans offered investment advice, according to the PSCA survey.
The Plan Sponsor Council of America’s (PSCA) 59th Annual Survey of Profit Sharing and 401(k) Plans is available for purchase at PSCA.org.