Christmas came a bit early last year when the Plan Sponsor Council of America announced in mid-December that combined employer/employee contribution rates hit 12 percent.
Bosses are kicking in an average of 5.1 percent of pay to their employees’ 401k accounts, and workers contribute an average of 7.1 percent, the highest recorded in the history of the survey.
While a strong economy and better education and awareness are no doubt factors, PSCA finds that employers are making significant plan design enhancements that are likely driving the record contribution rates.
They include higher default rates, more generous matches and earlier plan eligibility.
“Despite the dire predictions we often hear, workers with the support of employment-sponsored retirement programs are clearly making progress,” Jack Towarnicky, PSCA’s executive director, said in a statement. “The increases in retirement contributions from both plan participants and plan sponsors confirm the positive impact of company-sponsored retirement savings plans.”
The survey also finds that a larger percentage of eligible employees are participating in their plan—the percentage of eligible employees with an account balance has increased by more than six percentage points in the last 10 years.
With many financial professionals recommending a savings rate between 10 and 15 percent, the total savings rate of more than 12 percent in the survey shows that many American workers are well on their way to improved retirement outcomes, the organization notes.
“Increasingly, those covered by a 401(k) or other qualified retirement plan are doing the right things to prepare for retirement, largely because employers are doing to the right thing to support them,” Hattie Greenan, PSCA’s director of research and communications, added.
Among the supportive plan design trends:
- Match gains: There is a shift towards more generous matching formulas—the use of dollar-per-dollar matching of more than three percent of pay increased by nearly 50 percent from 24.1 percent in 2016 to 35.8 percent in 2017.
- Starting points: Companies continue to adopt automatic enrollment with 61.2 percent of plans now using it to boost enrollment.
- Higher ground: 60 percent of automatic enrollment plans use a default deferral rate of more than three percent—up from less than 30 percent of plans 10 years ago.
- Rate state: Nearly a third of plans now provide a suggested savings rate for participants—more than four-in-10 companies suggest a rate of 10 percent or more.
- Catching up: The number of eligible participants making catch-up contributions has climbed steadily and now stands at 29.3 percent for 2017.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.