What 403(b) Plan Participants are Doing Right

403(b) participants are doing what they should.

403(b) participants are doing what they should.

They’re better than the rest of us in every way.

Not only do non-profit organizations and their employees do their best to save the world, they also do their best to save—period.

The “2016 403(b) Plan Survey” from the Plan Sponsor Council of America shows upward trends in deferral rates, employer matches and adoption of automatic enrollment.

Participants continue to steadily increase their deferral rates and are now saving 6.2 percent of pay, up from 5.4 percent five years ago. Employers are also contributing more—the average match now is 4.6 percent of pay, up nicely from last year’s 3.8 percent.

“Last year’s most significant finding was the jump in the number of organizations making contributions to the plan. And this year we see a boost in the amount those employers are contributing,” Hattie Greenan, PSCA’s director of research and communications, said in a statement. “These increases are good news in terms of helping improve participant outcomes, or how well savers can be prepared to afford a secure retirement.”

Automatic Enrollment

The number of non-profits using automatic enrollment increased, now up to 19 percent of plans compared to 16.3 percent last year. Though automatic enrollment is rising, nearly 75 percent of plan sponsors surveyed are enrolling their employees at a rate of 3 percent of pay or less.

“We know employers that adopt automatic features in their plans see significant improvement in the savings levels of their workers,” added Aaron Friedman, national tax-exempt practice leader at Principal Financial Group, who sponsored the survey. “But we know from experience that these features tend to work best when the motivation to save more is built in, such as automatic enrollment with at least a 6 percent deferral. Adding automatic increases to gradually bump up deferrals each year is another key feature.”

Focus on Outcomes

More than half of employers—61.5 percent—evaluate whether the retirement plan is meeting its goals. Within that group, there was a 24 percent increase in employers who are measuring their participants’ ability to meet and maintain income goals in retirement.

“Instead of simply looking at measures such as participation, account balances and deferral rates, it’s great to see more plan sponsors taking a holistic view by focusing on possible participant outcomes as well,” Friedman said.

Other Key Findings

PSCA’s 2016 403(b) Plan Survey reports on the 2015 plan-year experience of 614 not-for-profit organizations. New this year, the executive summary includes trending data from the past five years.

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