Thankfully, most 401k plans offer employer contributions, a commitment on the part of employers to help employees save.
“Among large 401k plans with employer contributions, 15% had automatic contributions and nearly half relied on a simple matching contribution.”
The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401k Plans, 2019, found that in 2019, the latest year for data, 87% of large 401k plans, covering more than 90% of 401k participants, had employer contributions. Employer contributions represented 31% of total contributions going into large 401k plans in 2019.
Among large 401k plans with employer contributions, 15% had automatic contributions, which occur regardless of participant contributions, and nearly half relied on a simple matching contribution. The most common simple match was 50% up to a participant contribution of 6% of pay, used by 24% of 401k plans with simple matches.
Another 15% of simple matches, paid dollar for dollar (100%) up to a contribution of 4% of pay.
Investment menu options
The study found that, on average, large 401k plans offer participants 28 investment options. Nearly all large 401k plans offered domestic equity funds (typically, nine on average, when offered), international equity funds (three, on average), and domestic bond funds (three, on average).
In 2019, 86% of large 401k plans offered target date funds (10, on average). Funds include mutual funds, collective investment trusts (CITs), separate accounts, and other pooled investment products.
Index funds
Index funds make up a significant component of 401k assets, holding 39% of large 401k plan assets in 2019. Index funds held a slightly greater share of assets in larger 401k plans, rising from about one-third of assets in plans with less than $250 million in plan assets to 43% of assets in plans with more than $1 billion.
Index funds are widely available across all plan sizes. More than 95% of 401k plans with more than $10 million in plan assets offered index funds in their plan lineups in 2019, while 85% of 401k plans with less than $1 million did. Index funds, which tend to be equity index funds, generally have lower expense ratios than actively managed equity funds.
Fees and expenses
Mutual fund expense ratios in 401k plans tend to be lower in larger plans and have trended down over time.
For example, the average asset-weighted expense ratio for domestic equity mutual funds (including both index and actively managed funds) was 0.59% for plans with less than $1 million in plan assets, compared with 0.35% for plans with more than $1 billion in plan assets in 2019. Mutual fund expense ratios also tended to decrease in 401k plans between 2009 and 2019.
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.
