PSCA Finds More than Half of Plans Offer Advice
A PSCA press release said that for the first time, more than half of all plans (51.8%) offer investment advice to participants. The survey found more small companies offer investment advice than large companies.
The report on the 2008 plan-year experience of 908 plans with 7.4 million participants and more than $600 billion in plan assets also showed that following a big increase in 2007, the rate of addition of automatic enrollment has slowed but continued. Nearly 40% of all plans and more than half of large plans currently use automatic enrollment.
Approximately 83% of eligible employees have balances in their 401(k) plans, up from 81.9% in 2007, the press release said. Pre-tax participant deferrals for the survey sample average 5.5% of pay for non-highly compensated workers and 6.6% of pay for highly compensated workers.
More than a third (36.7%) of plans permit Roth 401(k) contributions, up from 30.3% last year, and 15.6% of those eligible to make Roth contributions are doing so.
Regarding small balances left in plans, the survey found half of plans transfer balances between $1,000 and $5,000 to an IRA and pay out balances less than $1,000. Forty percent of plans retain balances of more than $1,000 in the plan, and 10% of plans retain all small balances in the plan.
PSCA data found company contributions in 2008 averaged 4.1% of payroll, the same as in 2007. They are highest in profit sharing plans (9.3% of pay) and lowest in 401(k) plans (2.9% of pay). Only 1% of respondents indicated that they suspended their employer match.
Numerous formulas are used to determine company contributions, but in plans permitting participant contributions, the most common formula is a fixed match only, present in 24% of plans. For plans with fixed matches, half of plans match $0.50 per $1.00, most commonly up to the first 6% of pay (29% of plans). Among profit sharing plans, the most common type of company contribution is a discretionary profit sharing contribution only, which is present in 67.9% of plans.
Immediate vesting is present for matching contributions in 37.1% of plans and for non-matching contributions in 26.1% of plans. Among plans that do not have immediate vesting, graduated vesting tends to be the most common arrangement for all plan types.
Nearly 24% of plans offer a safe harbor match, and 6% offer an elective safe harbor contribution. Of plans that offer a safe harbor match, 30.4% offer the automatic enrollment safe harbor match.
PSCA said its survey found that in 2008 the typical plan in its database had approximately 60% of assets invested in equities, down only 5% from 2007. Assets are most frequently invested in actively managed domestic equity funds (23.1% of assets), followed by stable value funds (13.7%), target retirement date funds (8.4%), indexed domestic equity funds (8.3%), actively managed international equity funds (7.7%), and balanced stock/bond funds (7.7%).
The number of funds offered to plan participants has plateaued, according to the press release. Plans offer an average of 18 funds for participant contributions. The funds most commonly offered for participant contributions are actively managed domestic equity funds (81.3% of plans), actively managed international equity funds (78.5% of plans), indexed domestic equity funds (70.2% of plans), and actively managed domestic bond funds (65.8% of plans).
The availability and use of target-date funds continues to grow, as 57.7% of plans now offer them. Nearly 92% of companies offering target-date funds use a packaged product. Larger companies are more likely to customize their own funds.
Overwhelmingly, money is managed in mutual funds, although larger companies also use collective trusts and separately managed accounts. Self-directed brokerage windows are offered in 15.5% of plans, while open mutual fund windows are offered in 8.3% of plans. On average, plans invest 2.2% of plan assets through brokerage windows and 1.5% through mutual fund windows.
The 52nd Annual Survey of Profit Sharing and 401(k) Plans covers a wide variety of topics, including data on participation rates, catch-up contributions, company contributions, asset allocation, investment options, company stock, professional management, investment advice, and automatic enrollment, and the annual surveys are frequently used by companies to provide benchmarks for their plans and by the government as a resource for public policy decisions.
The survey report is available for purchase for $375 for non-PSCA members and $145 for members. Order online at www.psca.org or call (312) 419-1863.