How Are 401k Plan Sponsors ‘Encouraging’ Participation?

Target-date funds increasingly prevalent, as are employer contributions, auto-enrollment, and loans

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Employers are using a range of plan features and “a diverse mix of investment options” to encourage retirement saving among their employees, according to new research from BrightScope and the Investment Company Institute.

Their study shows that large plans have ramped up target date fund offerings in their investment lineups, and that most plans are offering employer contributions and loan features.

Using 5500 data and BrightScope’s Defined Contribution Plan Database, it finds that plans also are increasingly using auto-enrollment to boost participation.

“One of the strengths of the 401k system is that it allows employers to customize their plans to meet the needs of their unique workforces,” Sarah Holden, ICI’s senior director of retirement and investor research, said in a statement. “Employers use that flexibility to offer features that can encourage participation.”

Importantly, the organizations found that 80 percent 401k plans offer target-date funds. In 2015, the average large 401k plan offered 29 investment options, of which about 14 were equity funds, three were bond funds, and eight were target date funds.

The 80 percent of plans offering target-date funds in 2015 is up from 32 percent in 2006. Investors who prefer to set their own asset allocation and rebalance their own portfolios can use a mix of equity and bond funds. Target date funds, on the other hand, are designed for investors who prefer a more simplified approach.


  • The great majority of 401k plans offer employer contributions: In 2015, nearly 90 percent of large 401k plans, covering more than nine out of 10 plan participants, had employer contributions.
  • Employer contributions are common even among smaller plans—about 80 percent of 401k plans in the sample with $1 million to $10 million in plan assets had them in 2015.
  • Most larger 401k plans use auto-enrollment, with more than half of the larger 401k plans in the sample with more than $100 million in plan assets reported that they automatically enrolled their participants.
  • For plans with more than $1 billion in plan assets, more than six in 10 used auto-enrollment, compared with fewer than 20 percent of plans using auto-enrollment in the $1 million to $10 million range of plan assets.
  • More than eight in 10 401k plans offer loans. Overall, 82 percent of plans in the sample, covering 88 percent of participants, had participant loans outstanding in 2015.
  • For plans with more than $50 million in assets, more than 90 percent had participant loans outstanding.
  • Total plan cost and mutual fund expense ratios have continued trending downward. In 2015 the average total plan cost was 0.88 percent of assets, down from 1.02 percent in 2009. The study shows that mutual fund expense ratios in 401k plans tended to decrease during this time as well.

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