Retirement Plan Offerings
Percentage of Responses, by Asset Range
Safe Harbor Plans
Impact of COVID-19
The economic impact of the pandemic reverberated through sponsor and participant behaviors on a limited scale. Average plan participation rates are slightly higher than last year, while average participant deferral rates have moved lower, perhaps due to changes in participant composition from layoffs or furloughs. While some employers (7%) have reduced or suspended matching contributions, most of them are in the midsize plan category—i.e., with $25 million to $100 million in plan assets. Overall, 59% of employers that did reduce/suspend their match hope to reinstate it in Q1 2021.
Overall Participation Rate
Overall Deferral Rate
Match Suspensions, by Plan Asset Size
When Match Suspensions Will Be Reinstated
Impact of Headline Topics
Besides the pandemic creating headlines this year, recent and proposed legislative and regulatory changes may prompt sponsors to take action in two areas they have been slow to materially accept: environmental, social and governance (ESG) investing and in-plan retirement income solutions. Both are used by fewer than one in eight defined contribution (DC) plans, and it is unclear what effect these regulatory changes will have on sponsor interest. Programs to help employees manage student loan debt have also interested sponsors, with adoption having doubled since 2017.
Plans Offering ESG Investment Options
Plans Offering a Student Loan Repayment Program
Plans Offering an Income Creation Product/Strategy
†E.g., Financial Engines Income+, Morningstar Income Secure, etc.
‡E.g., Hueler Income Solutions, etc.
Adoption of automatic enrollment and automatic escalation continues to rise—now at 51% and 46% respectively, vs. 48% and 23% last year. Yet, their future growth may depend on acceptance among smaller plans—i.e., those having under $50 million in plan assets. Less than 50% of those plans have implemented either feature vs. the more than 75% of plans with over $200 million that have implemented one or both. When offered, target-date funds (TDFs) remain the dominant default investment option, as usage increased for the fifth year in a row and now stands at 76%.
Plans Using Automatic Features
Average Plan Participation Rates, by Features Offered
Trend in Plans Using a TDF for the Default Investment
Default Deferral Rate
Many factors influence participant outcomes, but savings rates are often viewed as one of the best measures of long-term success—participants who save more stand to accumulate more over time. Because of this, it is encouraging to see that automatic enrollment continues to push savings rates higher: The percentage of defined contribution plans with a default deferral rate over 3%, a common benchmark, reached 52% this year—an all-time high. Not surprisingly, higher default deferral rates are also correlated with higher average overall participant deferral rates.
Default Deferral Rate
Plans With a >3% Default Deferral Rate
Average Participant Deferral Rate, by Default Rate
Offered in 73% of all defined contribution plans, matching contributions are a popular way for employers to supplement participant retirement savings. However, use of matching contributions slid for the second consecutive year, down from 77% in 2018. The largest decrease is found among plans with under $5 million in assets; of these, 64% offer a match, vs. 73% in 2018. Still, employer match features continue to get more participant-friendly. For example, 41% of employers now offer a “true up,” and 80% make match contributions each pay period—both up from last year.
Plans Offering Employer Match
Plans With ‘True-up’ Match Provision
Other Match Provisions
Employers often use match strategies—e.g., match structures, match rates, vesting schedules, etc.—to incentivize certain participant behaviors. About half (47%) of plans use a stretch or tiered match formula, which requires participants to defer more to receive the maximum match, but only 7% of plans will match participant contributions that exceed 6% of salary. Employers also use vesting schedules to reward longer-tenured employees, but immediate vesting is increasingly viewed as a valuable tool in attracting new talent and is now used by a record 41% of plans.
Maximum Employer Match Rate
100% Vesting in the Match Available
When it comes to plan governance practices, larger plans—i.e., with over $50 million in plan assets—tend to have the most. Almost all have either an investment committee or investment policy statement (ISP), with 90% having both, whereas fewer (<67%) micro plans—i.e., those with under $5 million—have either. Overall, both investment committees and ISPs were more common this year across nearly every plan size. Plans contracting 3(16) fiduciary services, where a third party assumes responsibility for certain plan administration decisions, was largely unchanged from last year’s findings.
Plan Has an Investment Committee
Plan Has an IPS
Plan Employs a Third-Party Administrator as 3(16) Fiduciary
Plan fees remain a top concern of sponsors, as evidenced by the fact that 78% have calculated plan administrative fees during the prior plan year. Benchmarking of these fees also remains popular, with 51% of plans having done so. The allocation of administrative fees has changed little in the past four years; participants continue to bear the most responsibility for recordkeeping fees. But participants also continue to benefit from falling investment management fees: 70% of plans now have an average asset-weighted expense ratio of less than 0.50%, a notable increase from the 54% in 2017.
Calculated Administrative Fees in the Past 12 Months
Who Pays Recordkeeping Fees
Average Asset-Weighted Investment Expense Ratio
Participant Education and Advice
The COVID-19 pandemic has elevated the perceived importance of investment advice and financial wellness offerings. This year, a record 85% of plans now offer some form of investment advice. Financial education was also more common and is now offered in 74% of plans, up from just 56% in 2017. Nearly all types of financial education saw year-over-year increases in their accessibility. Such growth is fueled in part by the near universal belief sponsors have in the benefits of financial wellness programs: Over 95% agree that such programs are “very useful” to participants.
Investment Advice Offerings
Types of Financial Education/Guidance Offered
When Offered, Financial Wellness Programs Are Very Useful to Employees/Participants
The 2020 DC Survey found that 78% of defined contribution plans now work with a retirement plan adviser or institutional consultant, up from 68% in 2016, and 54% report having worked with their adviser for over seven years. Sponsors use advisers for a wide range of services, but those involving investment selection and monitoring are among the most common. Many sponsors choose to have advisers serve as co-fiduciaries for their plan, but smaller plans appear more open to 3(38) fiduciary services, whereby sponsors delegate the day-to-day investment decision making to their adviser.
Plans Using a Retirement Plan Adviser/Consultant
Length of Relationship with Adviser
Plans Using Fiduciary Advisory Services