401(k) Plan Sponsors Enhancing Plan Design

The availability of Roth contributions has doubled in the last decade, and more plan sponsors are using a default deferral rate with automatic enrollment that is higher than 3%, a Plan Sponsor Council of America survey found.

Seventy percent of 401(k) plan sponsors made Roth contributions available in 2017—a significant increase over 2016, according to the Plan Sponsor Council of America’s (PSCA)’s 61st Annual Survey of Profit Sharing and 401(k) Plans.

This is especially true among plans with fewer than 50 employees (up from 55.6% in 2016 to 67.7% in 2017).

Plan sponsors continue to adopt automatic enrollment, with 61.2% of plans now using it. However, automatic enrollment is still mostly applied to new hires only. The most common default deferral rate for automatic enrollment is 3%. However, 60% of plans use a default deferral rate with automatic enrollment of more than 3%—up from less than 30% of plans 10 years ago.

The use of mobile technology to provide plan services to participants continues to increase—it has doubled since 2014 and in 2017 was used by 43.6% of plan sponsors.

The survey also found 90% of plans now have an investment policy statement (IPS). They are less prevalent among smaller plans. In addition, nearly one-third of plans provide a suggested savings rate for participants. More than four in 10 suggest a rate of 10% or more. And, one in five plan sponsors actively encourage participants to keep assets in their plans after retirement.

Boosted savings and contributions

According to the survey, participants saved an average of 7.1% of pay in 2017, up from 6.8% in the previous two years.

Nearly all plan sponsors surveyed make contributions to their plans (only 37% do not). The average company profit sharing contribution increased to more than 5% of pay for the first time. It increased from 4.8% in 2016 to 5.1% in 2017. In addition, there is a shift to a more generous 401(k) matching formula. The survey found the use of dollar-for-dollar matching above 3% of pay (most commonly to 6% of pay) increased by nearly 50%, from 24.1% in 2016 to 35.8% in 2017.

“Design enhancements that leverage behavioral finance insights such as automatic enrollment, coupled with generous employer matching contributions, are helping build a more financially secure retirement for America’s workers,” says Hattie Greenan, PSCA’s director of Research and Communications.

PSCA’s 61st Annual Survey reflects the 2017 plan-year experience of 605 DC plan sponsors. The full printed survey is available for pre-order (electronic copies are available now).