American workers are saving a higher percentage of their compensation than ever in their 401ks (or “409ks” as President Trump recently referred to them), and a growing number are taking advantage of the opportunity to save in a Roth 401k option.
According to new data from the Plan Sponsor Council of America (PSCA), part of the American Retirement Association (ARA), plan participant deferrals rose in 2018 to an average of 7.7% of pay, up from 7.1% in 2017 and 6.8% in 2016.
PSCA’s 62nd Annual Survey of Profit Sharing and 401k Plans, the longest running survey of its kind, also found company contributions coming in at an average of 5.2% in 2018, raising the average combined savings rate to 12.9%, up from the previous year’s record finding of a combined savings rate of 12.2%.
The survey found that nearly a quarter of participants (23%) elected to contribute to a Roth when given the opportunity, up from 19.5% in 2017 and 18.1% in 2016—a significant increase of nearly 30% in just three years. Nearly 70% of plans now provide a Roth 401k option, PSCA reports.
“Employer-sponsored retirement programs continue to demonstrate their value as the primary retirement savings vehicle for American workers,” said Hattie Greenan, PSCA’s Director of Research. “The flexibility and encouragement of design features incorporated by plan sponsors have clearly made these vehicles attractive and effective.”
Even as an increasing number of employers make it easier for workers to join company-sponsored retirement plans via automatic enrollment, the survey finds the percentage of those plans using a default deferral rate of 6% of pay (rather than the traditional 3%) increased from 23.8% in 2017 to 29.7% in 2018. At the same time, nearly a third of automatic enrollment plans now automatically increase deferral rates over time.
More key findings
The survey also found that:
- In 2018, nearly half (47.5%) of plans allowed participants to conduct plan transactions from mobile devices, up from 43.6% in 2017 and 36.3% in 2016.
- While the majority of plans have long allowed rollovers of assets into the plan, nearly half (46.3%) are now actively encouraging employees to do so.
- A third of plan sponsors are communicating specific savings targets to participants—and for nearly half of those, it’s a number 10% or higher.
- The percentage of participants taking a hardship withdrawal dropped from 2.3% in 2017 to 1.8% of participants in 2018.
- Fewer than 10% of plans offer an annuity option to their participants (9.8%).
The 62nd Annual Survey of Profit Sharing and 401k Plans, reflecting the 2018 plan-year experience of 608 DC plan sponsors, also covers topics such as monitoring investment policy statements, alternative investment options, company stock, distribution and withdrawals, participant education and communication, recordkeeping and other plan administration practices.
The full report includes a comprehensive executive summary that examines the 10-year trends of key plan benchmarking data points.
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
