Good news from the Plan Sponsor Council of America’s 65th Annual Survey of 401k and Profit Sharing Plans in the form of record-high contribution rates in 2021.
Combined participant and employer contribution rates reached 13.9% of pay in 2021
Released today, the survey reveals that combined participant and employer contribution rates reached 13.9% of pay, and 2021 saw the highest employer contribution rate in the history of the survey (5.6% of pay).
Importantly, nearly two-thirds of employers utilizing auto-enrollment set their default match rate high enough to make sure the employee receives the maximum employer match.
The survey reveals not only did most employers make planned contributions in 2021, 13% increased profit-sharing contributions, and 5% increased the match.
Overall plan participation and deferral rates both increased slightly. Nearly nine in 10 (89.2%) of eligible participants made plan contributions (up from 88.5% in 2020), with an average deferral rate of 8.3% of pay (up from 8% in 2020).
“As the nation emerged from the impact of the COVID-19 pandemic, benefit programs generally, and retirement savings programs particularly, were seen as a key employment differentiator,” said Hattie Greenan, director of research and communications for PSCA. “With the support and encouragement of employer contributions, workers responded in kind, enhancing their long-term retirement security.”
More good news? Hardship withdrawals and plan loans were down after a slight uptick of participants accessing their accounts during the pandemic. The combination of increased contributions and decreased withdrawals bolstered average account balances to nearly $195,000, up from $180,000 in 2020.
Distributions decreased slightly. Just 1.9% of participants took a hardship withdrawal in 2021 (down from 2.6% in 2020 and 18% borrowing against their account balances (down from 23.6% in 2020).
Plan design notes
The survey shows plan sponsors also continue to add design features to boost both worker retention and savings rates, including moving towards immediate vesting (10-point jump in 3 years), an increase in Roth availability, auto-enrolling at a rate high enough to obtain the full match, and increasing availability of managed accounts.
A press release from PSCA today adds:
- Vesting: The use of immediate vesting increased from 41% in 2020 to 44% of pay in 2021.
- Roth: Roth availability continues to climb and is now an option in 87.8% of plans; additionally, the percentage of participants making Roth contributions increased to 27.7%. Nearly 60% allow in-plan Roth conversions.
- Managed Accounts: Nearly half of plans offer managed accounts (48.8%), up from 43.6% in 2020.
Financial wellness an educational priority
In addition to strengthening plan designs, employers are providing education focused on increasing financial literacy, and more are providing investment advice and financial wellness programs.
- Education Priority: The most common reason for providing plan education is to increase overall financial literacy (77.4% of plans).
- Investment Advice: 44.2% offer investment advice, up from 32.3% last year.
- Financial Wellness: 27% of organizations offer a comprehensive financial wellness program, including more than half (55.4%) of large plans.
“Organizations are not just providing robust contributions and plan designs, they are also moving to support employees with increased education and financial decision-making support through wellness program and advice,” said Will Hansen, PSCA’s executive director and the chief government affairs officer for the American Retirement Association. “These supports along with enhanced contributions and plan designs will help buffer savers’ account balances against any future economic downturn.”
PSCA’s 65th Annual Survey of 401k and Profit Sharing Plans reports on the 2021 plan-year experience of 557 plans. The full report is available for purchase at: https://www.psca.org/research/401k/65thAR.
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