403(b)s Adopting Features to Help Employees Save

An Industry Report on the survey results for 403(b) plans shows a quarter of 403(b) plans use automatic enrollment, compared to 29.4% of defined contribution plans overall. Twenty-three percent of those just implemented the feature in the last year. A third of plans with automatic enrollment implemented the feature more than three years ago, and a quarter implemented it two to three years ago.   

The majority (88.1%) said they apply automatic enrollment to new employees and 29.8% apply it to existing employees not enrolled in the plan.  

The most common reason cited by 403(b) plan sponsors for implementing automatic enrollment was that the organization wanted to be more proactive in helping employees save, cited by 63.7% of respondents.  

Half of plans use target-date funds as the default investment for automatically enrolled employees, followed by 11.1% that use a balanced fund and 8.6% that use a money market fund. The most common automatic deferral rate is 3%, used by 36.1% of 403(b) plans with automatic enrollment.  

Sponsors are also helping participants accumulate savings by offering a Roth feature and by matching employee deferrals. For plans that offer a Roth 403(b), respondents said, on average, 20.6% of participants use it.  This compares to a 12.5% average for all plans that offer a Roth feature.  

Three quarters of 403(b) plan respondents said they match participant deferrals or offer a non-elective contribution. The most common match rate is less than 50% of the first 6% of salary deferred (34.9%), followed by 50% of the first 6% of salary deferred (25.4%).  

Twenty-seven percent of 403(b) plans vest match immediately, while 20.5% each said match is fully vested after three years and five years.  

Nineteen percent of 403(b) respondents said their plans offer a loan provision and 17.7% offer hardship withdrawals, while 46.8% offer both. Of plans that offer loans, on average, only 8.8% of participants have outstanding loans. Of plans that offer hardship withdrawals, on average 1.6% of participants have taken one in the past year.