Employers Account for More than One-Third of 401(k) Contributions
More than 9 in 10 (91%) large 401(k) plans—those with 100 participants or more—offered employer contributions as of 2023. That’s up 6% from 85% back in 2007, according to The ICI/ISS MI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2023.
In addition, 94% of large 401(k) plan participants were in plans with employer contributions, up slightly from 91% in 2007, reflecting the fact that larger 401(k) plans are more likely to have employer contributions.
Nearly all of the largest plans—more than 95% of large 401(k) plans with 5,000 participants or more—had employer contributions as of 2023. Yet employer contributions are also common even among smaller 401(k) plans—92% of 401(k) plans in the sample with 100 to 499 participants had them in 2023.
The newly released research from the Investment Company Institute (ICI) and ISS Market Intelligence revealed employer contributions represent a significant portion of contributions flowing into large 401(k) plans. In 2023, $181 billion, or 35% of employer and employee contributions into large 401(k) plans, was from employer contributions.
“American companies are empowering their workers to save for retirement with employer contributions, diverse investment options, and falling plan fees,” said Shelly Antoniewicz, ICI Chief Economist. “401(k) plans are crucial for private-sector workers’ retirement security, with about 70 million active participants and millions of retirees benefiting.”
Employers Make Significant Contributions to Large 401(k) Plans
Employer and employee contributions to large 401(k) plans, billions of dollars
Auto-enroll up, plan cost down
Not surprisingly, the study also found larger plans are more likely to report an automatic enrollment feature. In 2023, more than half of 401(k) plans in the sample with more than $50 million in plan assets had automatic enrollment, and more than six in 10 plans with more than $1 billion in plan assets did. Overall, 43% of large 401(k) plans reported that they automatically enrolled participants.
Since 2009, total plan cost has decreased whether measured on a plan-, participant-, or asset-weighted basis. Among the large 401(k) plans analyzed, total plan cost decreased from 1.02% in 2009 to 0.74% in 2023 on a plan-weighted basis, from 0.65% to 0.48% on a participant-weighted basis, and from 0.47% to 0.30% on an asset-weighted basis.
The average participant was in a lower-cost plan, with a total plan cost of 0.48% of assets in 2023, down from 0.65% in 2009, while the average dollar was invested in a plan with a total plan cost of 0.30% in 2023, down from 0.47% in 2009.
All plan size groups saw reductions in total plan cost between 2009 and 2023, but the largest reduction tended to occur for the smallest plans, which historically have the highest fees.
“The measure of total plan costs has fallen significantly in the decade-plus that we’ve been tracking it using MarketPro Retirement powered by Brightscope. Participants are saving money on plan costs and investment options. This is good news for American retirement savers,” said Brooks Herman, Managing Director, ISS MI.
Large plans on average in 2023 offered 29 investment options, of which about 13 were equity funds, three were bond funds, and 10 were target date funds. Nearly all plans offered at least one domestic equity fund, international equity fund, and domestic bond fund, and 90% of plans offered target date funds. Funds include mutual funds, collective investment trusts (CITs), separate accounts, and other pooled investment products.
The ICI/ISS MI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2023 analyzes plan-level data gathered from audited Form 5500 filings of private-sector defined contribution (DC) plans, providing unique, new insights into private-sector DC plan design. The report presents data on how large 401(k) plans are structured, the types of service providers that plan sponsors engage with, the investment options offered in 401(k) plans, and the fees and expenses paid by 401(k) participants and plan sponsors.
SEE ALSO:
• Target Date Fund Assets Surge to $4.8T as CITs Gain Market Share
• Why Millions of Eligible Workers Do Not Contribute to Their Retirement Plans: It’s Not What You Think
• ‘How America Saves 2026’ Preview: Strong Market, Auto Features Power Record 401(k) Balances
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.