403(b) Plans Improving Plan Design

Automatic features are on the rise.
In a survey of 608 non-profit organizations conducted by the Plan Sponsor Council of America (PSCA), the council found these non-profits are making improvements to their 403(b) plans, particularly with respect to auto-plan features.

Twenty-one percent of 403(b) plans now automatically enroll their participants, up from 19% in 2016 and 16.2% in 2014. Among the 21% of plans that automatically enroll participants, 52% pair that with automatic escalation, up from 43% in 2015.

The percentage of plans with a default deferral rate of less than 3% dropped in half, while the percentage of 403(b) plans with deferral rates north of 3% increased from 21.6% in 2016 to 34%. In addition organizations saw average employer contributions rise from 4.7% in 2015 to 5% in 2017.

The 403(b) plans with a qualified default investment alternative (QDIA) now overwhelmingly use target-date funds (65.8%) as opposed to money market funds (9.8%).

“Over the past several years, the PSCA survey has shown a steady increase in the use of automation and plan design enhancements,” says Aaron Friedman, national practice leader at Principal Financial Group, which sponsored the survey. “Automation is leading to greater plan enrollment, deferral rate escalation and employee contributions. The addition of these features tangibly helps participants boost retirement readiness in practical and customized ways.”

The 2016 PLANSPONSOR Defined Contribution Survey also found that 27.2% of 403(b) plans offer in-plan income products that guarantee monthly income, compared to 7.3% of DC plans overall. More than 12% offer in-plan income products that guarantee a base benefit, compared to DC plans overall.