403b plan participation and contribution rates are showing solid growth according to new data from non-profit organizations that sponsor them.
The 11thannual 403b plan survey from the Plan Sponsor Council of America (PSCA), released Oct. 2, reported increased contributions by both participants and organizations continued to have a positive impact on retirement readiness.
Plan sponsor contribution rates for 403b plans, that cousin of 401ks available only to non-profits and government employers, rose in the last year to an average of 5.5% of pay, up from 4.7% a year ago.
More workers benefited sooner from those contributions as well, as the number of organizations offering immediate eligibility also rose.
In addition, the survey found an increase in 403b plan participant contributions, now an average of 6.6% of pay, and responding employers noted a remarkably robust 81% rate of participation.
Combined, employer and employee contributions average over 12% of pay for 403b plans. Plan design features like automatic enrollment, currently in place at one-in-five (21.8%) responding organizations, encourage higher participation and contributions. More than a third of those plans (37.7%) use a default deferral rate higher than 3%.
The average 403b account balance has nearly doubled since the survey began tracking it in 2011 and is now $86,697.
“It’s encouraging to see the increased engagement evidenced by higher contribution and participation rates,” said Luke Vandermillen, vice president of retirement and income solutions at Principal Financial Group, which sponsored the survey. “Plan sponsors have taken the lead by increasing contributions and adapting plan designs to encourage more participation, which not only improves retirement readiness but also serves as a differentiator in a tight labor market.”
PSCA’s 2019 403b Plan Survey, based on responses from nearly 600 non-profit organizations across the U.S., is the only independent 403b research report that delivers actionable data on trends among plan sponsors in the non-profit sector.
“These 403b programs are offered by an exceptionally diverse group of employers, both in size and workforce composition, and this year’s survey reflects both the diversity in designs alongside a number of consistent encouraging trends to help workers prepare for a successful retirement,” says Hattie Greenan, director of research and communications at PSCA.
Healthy interest in financial wellness
Responding to a new question in this year’s survey, a quarter of organizations already have a financial wellness program in place and nearly half (47%) have plans or interest in implementing one in the future.
“While workers in the non-profit sector have always had a strong commitment to their profession and its mission, it’s exciting to see growing interest by their employers in helping those workers take better care of their financial well-being,” notes Greenan. “It’s an emerging best practice, and one that stands to benefit both workers and their employers.”
Fiduciary focus
The survey, which has previously noted an increased emphasis on fiduciary responsibility by plan sponsors, found that a growing number rely on the use of an investment policy statement (IPS). More than 60% of plans have one in place, a 40% increase over the past decade.
“An investment policy statement is one of the best ways to demonstrate the related fiduciary responsibility which has become increasingly important in the current heightened regulatory environment,” said Vandermillen. “Working with a financial advisor or consultant who specializes in retirement plans can have a big impact on putting the right documentation in place, overcoming fiduciary concerns and helping ensure the plan and participants achieve goals.”
More than half of organizations (53.4%) say they use a retirement plan advisor separate from their service provider; illustrating that nearly half of the organizations surveyed do not currently work with a retirement plan advisor. Another 4 in 10 indicate they aren’t yet evaluating whether their plan is meeting its goals, an area where advisors and consultants can help.
The survey received responses from 580 non-profit organizations that currently sponsor a 403b plan for employees and range in size and industry from small community-based organizations to large hospital and university systems.
For more information about the survey, visit https://www.psca.org/2019_403b_report.