DC Plan Focus Is Evolving

October 22, 2012 ( – The goals and designs of defined contribution (DC) plans are evolving as defined benefit (DB) plans are increasingly replaced.

By Rebecca Moore | October 22, 2012
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According to Diversified’s “Report on Retirement Plans 2012: Bridge to Your Retirement Success,” while having a high participation rate is still viewed as the best indicator of plan success, its significance is falling. In 2012, 52% of plan sponsors believe participation rate is the best indicator of plan successdown from 58% in 2011. During this same period of time, the number of plan sponsors selecting average deferral rate as the best indicator of plan success climbed from 14% in 2011 to 20% in 2012.      

Nearly all large corporate plan sponsors (95%) offer a fixed or discretionary employer contribution. Among those who offer a fixed contribution, 84% use a matching formula. The two most common matching formulas are dollar-for-dollar on the first 5% to 6% of pay (20% of plans use this formula, up from 11% in 2011), and fifty cents on the dollar on the first 6% of pay (17% of plans use this formula, up from 15% in 2011).    

More than half of all large corporate 401(k) plans (53%) offer financial advice and an additional 33% are considering adding this to their plan’s offering. The use of automatic enrollment and automatic deferral increases is also growing.  Forty-five percent of large corporate 401(k) plans sponsors have implemented automatic enrollment and 40% are considering implementing this feature.    

Automatic deferral increases have been implemented by 30% of plan sponsors, and an additional 43% are considering adding this feature in the future. However, among plans taking advantage of automatic enrollment, 58% enroll participants at a default deferral rate of 3% or less–far lower than the 6.7% average deferral rate for self-enrolled participants.  

The percentage of employees at large corporations participating in their employers’ 401(k) plans remains unchanged since 2011 at 69%; and the average deferral rate dropped sharply from 8.8% in 2011 to 6.7% in 2012. With deferral rates falling, 56% of plan sponsors report that motivating employees to save adequately is “extremely” or “very” challenging, which surpassed keeping up with regulatory challenges (52%), helping participants invest wisely (43%) and meeting fiduciary responsibilities (38%).