403(b) Plans Slowly Adopt Auto, Other Features

June 26, 2013 (PLANSPONSOR.com)The number of 403(b) plans offering automatic enrollment is increasing, but the uptake is still slow, according to a source from The Principal Financial Group.

Although it’s a bit disappointing that more plan sponsors are not using auto enrollment, it’s promising that when they do use the feature, few participants opt out of the plan, Aaron Friedman, national practice leader, tax exempt at The Principal Financial Group, said during a webinar about Plan Sponsor Council of America’s (PSCA’s) 2013 403(b) Plan Survey.

Plans with automatic enrollment grew from 11.5% in 2009 to 14.6% in 2012, according to the survey. Results showed that 11.8% of plans offering auto enrollment had a default deferral percentage of 1%. The most common default deferral percentage was 3% (38.2% of plans with auto enrollment). PSCA found that 16.9% of the plans with auto enrollment also offered auto escalation, while 18.2% offered voluntary escalation and 64.9% offered none.

If a plan sponsor is going to have auto enrollment, Friedman said, they should consider having both auto enrollment and auto escalation features. “It certainly helps psychologically with participants,” he added.

Regarding loans in 403(b) plans, Friedman said there’s a trend away from hardship-only loans—they can now be taken for a number of reasons, and multiple loans can be issued at once. Despite these trends, “loan utilization is minimal,” he said.

According to PSCA’s survey, 36.8% of 403(b) plans in 2009 allowed multiple loans, compared with 44.1% allowing them in 2012. The survey found that 11.6% of 403(b) participants have loans and borrow, on average, $5,987.

In 2012, 403(b) plans made several changes, chief of which was altering their investment lineups (40% of plans). Other modifications included changing/adding plan design features (24%); changing employer or participant contributions (10.4%); adding auto enrollment (4%); changing or adding providers, advisers or consultants (16%); and other (5.6%).