Employee DC Deferral Rates Are Down, Company Contributions Up

September 16, 2003 (PLANSPONSOR.com) - Profit sharing and 401(k) plans remain popular investment choices for the majority of eligible employees, even if deferral rates have slipped in recent years.

Overall, 80.3% of eligible employees held balances in their 401(k) plans, but pre-tax deferrals took a hit in 2002 to an average of 5.2% of pay for lower paid and 6.3% for higher paid employees. By comparison, 2001 saw deferral rates of 5.4% for non-highly compensated employees and 6.4% for those in the higher pay tiers, according to according to the 45th Annual Survey of Profit Sharing and 401(k) Plans from the Profit Sharing/401(k) Council of America (PSCA).

Even though participation rates dipped slightly, company contributions recorded an increase in 2002. The average company contribution was 4.1% of payroll in 2002, up slightly from an even 4% the previous year. Still the highest were contributions in profit sharing plans (8.8%, up from 8.1%) while 401(k) plans offered contribution amounts of 2.8% of payroll, up from 2.5% in 2001 (See PSCA: Most Plans Offer at least 10 Funds ). Company contributions average 25.6% of total net profit for profit sharing plans and 11.3% for 401(k) plans.

PSCA found numerous formulas to be in place for companies trying to determine company contributions, which varied accordingly for different types of plans. In plans permitting participant contributions, the most common formula is a fixed match only, present in 25.7% of plans. The most popular was a match of $.50 per $1 up to the first 6% of pay, present in 27.9% of plans that have fixed matches, up from only 26% of plans offering such a match in 2001. The most common type of company contribution for profit sharing plans is a discretionary profit sharing contribution only, which is present in 75.7% of plans, an increase from 70.9% the previous year.

Matching contributions are most frequently made on a payroll period basis (56.5% of plans), while nonmatching contributions are most often made annually (67.4% of plans).

Fund Options

Also increasing among retirement plans was the number of fund options. Eight out of 10 (80.8%) of plans now offer 10 of more fund options for participants to contribute to, up from 69.8% in 2001 and 61.5% in 2000. In fact, on average in 2002, company contributions had 14 funds available to them, while participant contributions had 15 fund options.

Most common among fund options were:

  • 78.7% – actively managed domestic equity funds
  • 72.9% – balanced stock/bond funds
  • 72.6% – actively managed international equity funds
  • 66.0% – indexed domestic equity funds.

Not surprisingly then, average plan had the majority of its assets invested in equities (62%). Similar to the most popular fund options, PSCA found most plan assets sunk into:

  • 28.1% – actively managed domestic equity funds
  • 12.0% – stable value funds
  • 10.3% – balanced stock/bond funds
  • 8.5% – indexed domestic equity funds
  • 7.7% – cash equivalents.

However these figures are down from 2001’s results that showed 64% of plan assets to be invested in equities, and 30.9% in active domestic equity funds.

PSCA found most plan assets to be managed by mutual funds (39.1%), followed by banks (19.7%), insurance companies (12.1%) and investment advisors (10.8%), with investment management, trusteeship and recordkeeping still dominating the service offerings.

Among trusteeship, most plans (41.6%) are self-trusted, 33.3% use bank trustee and 25.1% use non-bank trustees. PSCA found the majority of self-trusted plans to be among the smaller contingent, while larger plans tend to use bank or non-bank trustees.

Recordkeeping relations appear to be equally as scattered, with 14% using more than one recordkeeper. Most often, these services are provided by third party administrators (33.5%), banks (16.6%) and mutual funds (11.9%).

Providers have also been busy offering more in the way of advice and investment education, the most popular advice options being:

  • one-on-one counseling (55.2%)
  • internet providers (50.2%)
  • telephone hotlines (31.9%)

Investment advice is offered in 51.9% of plans, most prevalent in small companies (59.7%) and least prevalent in large companies (34.5%). This represents an increase from 55.5% of small plans and 25.7% of large plans offering advice in 2001.

When it comes to education, companies said their primary reason for providing this feature was to increase participation (31.7%). Also given as reason for plan education were to increase plan appreciation (22.5%) and to introduce plan changes (20.4%). To accomplish these goals, companies use a variety of approaches, including:

  • enrollment kits
  • fund performance sheets
  • newsletters
  • slides
  • seminars
  • Internet
  • paycheck stuffers
  • modeling software.


To make life easier on the participant, sponsor and provider, more and more retirement plans turn to the Internet for some administrative functions. In fact, nine out of 10 (89.9%) plans permit participants to make some type of transaction via the Internet, up from 83.9% of plans in 2001 and 79.3% in 2000. An Intranet is used in 7.4% of plans.

One feature that has benefited from an increase in automation is plan loans, now offered by 81.8% of plans surveyed. Breaking it down, loans are permitted in

  • 86.2% of 401(k) plans
  • 83.6% of combination plans
  • 34.4% of profit sharing plans.

PSCA found on average, in plans that permit loans, 23.1% of participants have loans, averaging $6,765 per borrower. Loaned assets accounted for 2.2% of total plan assets in plans permitting loans.

PSCA's study examined the 2002 plan year experience of 1,046 profit sharing and 401(k) plans. Together, these plans hold over $244 billion in plan assets and include nearly 3.2 million participants. Of the 1,046 respondent plans, 70 are profit sharing plans, 552 are 401(k) plans, and 424 are combination profit sharing/401(k) plans. The study is available for $295.00 to non-members and $95.00 to PSCA members. More information can be obtained by calling (312) 441-8550.