Finally, there’s a retirement bright spot on the horizon.
According to a new report, nonprofit workers participated in 403b retirement plans at the highest level ever, despite overall challenges brought on by the COVID-19 pandemic.
This good news comes from the annual survey from the Plan Sponsor Council of America (PSCA), which is sponsored by Principal Financial Group. Now in its 13th year, the report tracks outcomes from 403b plans–an option only available to non-profit and government employees–based on input from 400 nonprofit retirement plan sponsors.
Overall retirement plan participation rose to 77.2% in 2020, up from 76.6% in 2019 and 72% the previous year. An increased push for automatic enrollment is the likely reason for the uptick in participation with almost 30% of organizations saying they use the option, representing a 50% increase from just five years ago.
“Non-profit workers’ continued commitment to retirement plan participation, even in the face of economic uncertainty, affirms the importance of these programs, and the value of the education provided by employers,” said Hattie Greenan, PSCA’s Director of Research and Communications. “The use of automatic enrollment has been shown to not only increase participation, but participant outcomes.”
And while non-profit employers are largely focusing on retirement benefits and outcomes, they continue to emphasize employee education that prioritizes retirement planning over participation. Other key findings from the survey include:
- 28.7% of plans noted having an automatic enrollment feature (including 42.9% of large organizations), up from 24.4% in 2019.
- More than 56% of plans with automatic enrollment now also automatically escalate the default deferral percentage over time.
- Half of the 403b plans now offer Roth after-tax contributions, up from 46.8% in 2019.
- The availability of investment advice for participants increased to 41.6% in 2020 from 36.7% the year prior.
- More plan sponsors are monitoring investment results on a more frequent basis, with 40.3% noting quarterly monitoring versus 38.5% in 2019.
“The survey results show resilience among organizations and workers that arguably faced the biggest challenges during the pandemic: hospitals, foundations, schools, and the arts,” said Kevin Morris, Vice President and Chief Marketing Officer for Principal’s Retirement and Income Solutions division. “As we move into the next phase of recovery, it’s as important as ever that non-profits are supported in providing strong retirement benefits and education to their workforce to continue to help participants feel more financially secure.”
Pandemic’s impact still felt
Despite the increased participation, some hard-hit non-profit sectors reduced or suspended plan contributions, which reduced the overall average to 6.3% of pay in 2019 versus 4.6% in 2020. Workers’ average saving rates also dropped from its peak (7.2%) in 2019 to 6.2%.
Increases in plan loans by participants were also “modest”–13.6% in 2020 versus 11.8% in 2019– despite increased access brought on by the CARES Act.
“There is no doubt that the non-profit sector has been disproportionately impacted by the economic strains of the pandemic, particularly in certain fields, and some had to make the financial decision to cut back on plan contributions and savings,” said Greenan of the PSCA. “The good news is that this was still a small percentage of all organizations, and even for those, many are already reinstating, or making plans to reinstate, their contributions.”
403b outpace 401k plans for annuities, ESG
Participants in 403b plans also appeared to be a bit more progressive than their 401k counterparts when it came to considering trendier plan options like annuities or environmental, social, and governance (ESG)-focused investment options.
More than half (53.5%) of 403b plans reported offering annuities as a guaranteed income option in retirement; surprisingly, only 17.2% of 401k plans provide that option.
When it comes to ESG offerings, 37.7% of surveyed non-profits are green on the option, compared to a measly average of just 2.6% in 401k plans.
Lynn Brackpool Giles is a contributing editor to 401(k) Specialist. Giles is a former Managing Director of Communications and Consumer Services for the Financial Planning Association (FPA), where she oversaw all corporate, legislative, and consumer communications. In her current journalistic practice, she is a frequent contributor to numerous financial services industry publications.
