Average 401k Deferral Rates Skyrocket

Number of retirement plans with a 6 percent default deferral rate surpassed the number of plans with a 3 percent rate

401k, retirement, T. Rowe Price, deferral ratesIt's climbing fast.

Market appreciation and an increase in default deferral rates sent participant account balances soaring in 2017.

T. Rowe Price, one of the “Big Three” retirement plan providers, said that on average accounts saw a $9,583 increase in 2017 compared to a $2,502 increase in 2016.

More impressively, the average employee pretax deferral rate reached 8.3 percent, the highest in 10 years, the company noted, citing its participant data.

The number of retirement plans with a 6 percent default deferral rate surpassed the number of plans with a 3 percent default rate, which is considered the industry standard, for the first time.

All told, the average participation rate in auto-enrollment plans was over 42 percentage points higher than in plans without auto-enrollment.

Loan usage, an area of contention among many 401k advisors, decreased slightly to 23.4 percent in 2017. The percentage of participants with multiple loans also decreased to 15.6 percent, a drop of 4 percentage points since 2013, when it peaked during the 10-year period.

However, the percentage of participants with outstanding loans increased by an average of 2.2 percent for participants aged 50 and older. Loan usage was highest among older Generation X and younger Baby Boomer participants, compared to other age groups.

Sixty-seven percent of plans offered Roth contributions in 2017. Nearly every age group saw increases in the percentage of participants making Roth contributions, with the largest contributors between the ages of 20 and 40.

The percentage of eligible participants making catch-up contributions reached a 10-year high, rising to 12.2 percent.

As for target date fund usage, plan sponsor adoption reached a 10-year high, rising to 94 percent in 2017. For the first time, target date funds accounted for the largest percentage of plan assets under management, surpassing all other investment types.

“We continue to see the significant impact plan design and financial wellness programs have on participant behavior, as evidenced by the increase in both participation and deferral rates and decrease in loan usage,” Aimee DeCamillo, head of T. Rowe Price Retirement Plan Services, said in a statement. “Earlier this year, we launched on-demand analytics that T. Rowe Price plan sponsors can access, which show how increased engagement with their participants directly drives positive actions.”

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