What’s Happening With 401k Participant Eligibility?

More than half of plans offer default deferral rate higher than 3 percent

Just in time for the holidays.Just in time for the holidays.

Offer a 401k plan, and they will come—it’s the year-end message offered by the Plan Sponsor Council of America.

The organization reports in its annual survey of 401k plans that 90 percent of employees are eligible to participate in their employer’s plan. Of those, the average percentage of eligible employees who participate in their plan is 87.6 percent.

The caveat, of course, is that it’s for companies that actually offer a 401k plan.

PSCA also finds company contributions average 4.7 percent of gross annual pay and allocation to target-date funds increased to nearly 20 percent of assets.

Roth 401ks are now allowed by 60 percent of plans and automatic enrollment is offered in 57.5 percent of plans

In a bit of surprising news, more than half of plans that use 401k automatic enrollment offer a default deferral rate higher than 3 percent of pay.

“Company sponsored retirement plans continue to grow participation and deferral rates,” Hattie Greenan, director of research and communications, said in a statement. “By designing plans that include features such as automatic enrollment and options such as target date funds and Roth 401k, plan sponsors are helping to advance the interests of all participants and grow America’s retirement savings.”

Here are more specific numbers, broken out by stakeholder:

401k participants
Respondents to the survey report that almost 90 percent (89.4 percent) of US employees are eligible to participate in their employer’s defined contribution (DC) plan.

The average percentage of eligible employees who have a balance in their plan is 87.6 percent, and 81.9 percent made contributions to their plan in 2015. This is up 5 percent over 2010. The average salary deferral (pre- and after-tax) for all eligible participants was 6.8 percent. Lower paid participants contributed an average of 5.5 percent of pre-tax pay, while higher-paid participants averaged 7.0 percent.

401k plan sponsors
The average company contribution to 401k plans is 3.8 percent, and the average contribution in combination 401k/profit sharing plans is 5.4 percent.

The survey found 66.8 percent of companies retain an independent investment advisor. Of those, 59.1 percent pay a fixed fee and 35.1 percent pay a percent of plan assets.

The majority of plan expenses are paid by the company with the exception of recordkeeping and investment consultant fees.

401k investment offerings and allocation
Plans offer an average of 19 funds, a number that has remained steady over the last five years. The funds most commonly offered are indexed domestic equity funds (79.3 percent of plans), actively managed domestic equity funds (78.0 percent of plans), actively managed domestic bond funds (74.7percent of plans), and actively managed international equity funds (73.4 percent of plans).

Assets are most frequently invested in actively managed domestic equity funds (21.4 percent of assets), target date funds (19.8 percent), indexed domestic equity funds (12.4 percent), stable value funds (8.1 percent), and balance funds (6.5 percent). The average allocation to target-date funds (19.8 percent of assets), which are offered by 63.2 percent of plans, is up from only 4.1 percent ten years ago.

401k advice and automatic Features
The survey found that 34.6 percent of respondents offered investment advice. Advice was offered by a registered investment advisor (28.8 percent), a certified financial planner (27.8 percent), or a third-party web-based provider (16.6 percent).

Respondents reported that 57.5 percent of plans have an automatic enrollment feature. This is most common in large plans (66.7 percent), while only 25.5 percent of plans with fewer than 50 participants have automatic enrollment. More than half of plans with automatic enrollment use a default deferral rate more than 3 percent up from 40.4 percent of plans in 2014. The most common default option is a target retirement date fund.

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