Though not yet back to 2021’s record highs, 401(k) plan contribution rates made modest gains in 2023 as employers and participants contributed a little bit more to their plans after pulling back the year before.
That’s according to the latest survey from The Plan Sponsor Council of America (PSCA), released today. The 67th Annual Survey of 401(k) Plans (reflecting 2023 plan-year data) showed that participants and organizations contributed more to 401(k)s in 2023 than the year before. And while savings rates increased, plan sponsors were focused on implementing mandatory provisions of SECURE 2.0 and deciding which optional provisions to implement.
“Employers and participants contributed more to their plans in 2023 after slipping off record highs in last year’s survey,” said Hattie Greenan, director of research and communications for PSCA. “While maintaining contributions, employers were also focused on implementing design features and optional provisions of both SECURE Acts to best help their participants balance immediate financial needs with long term financial security.”
Here are the top 10 highlights from the latest survey as per PSCA’s Executive Summary.
1. Participation: Participation rates increased slightly over 2022 rates with 88% of eligible employees having an account balance and 86.9% making deferrals.
2. Deferral Rates: Participants contributed an average of 7.8% of pay in 2023, up from 7.4% of pay the year before.
3. Employer Contributions: Employers contributed an average of 4.9% of pay in 2023, up slightly from 4.7% in 2022.
4. Roth Rises: Roth is now available at 93% of organizations, up from 89% in 2022. Sixty percent of plans allow in-plan Roth conversions. Thirteen percent of plans will adopt the SECURE 2.0 provision allowing Roth treatment of employer contributions and 35% are considering it.
5. Investments Increase: The average number of investment options offered increased again — after holding steady at 21 funds for the last three years (and 19 funds the two years prior to that), plans now offer an average of 22 funds in their lineups.
6. SECURE 2.0 Provisions: The optional provisions regarding distributions seem to be the most popular SECURE 2.0 provisions with 72% allowing distributions for natural disasters, half for a qualified birth or adoption (QBAD), and half in the event of a terminal illness diagnosis. Only 2% of plans are adding an employer match on student loan payments and less than 1% are adding a PLESA.
7. Automatic Enrollment: Sixty-four percent of plans use an automatic enrollment feature. Thirteen percent of plans automatically reenroll nonparticipants annually — up from 4% of plans 10 years ago.
8. Loans and Hardships: The percentage of participants with a plan loan outstanding dropped slightly in 2023 (from 18.6% in 2022 to 17.5%) whereas the use of hardship withdrawals increased (from 1.5% of participants in 2022 to 2.1% in 2023).
9. Cybersecurity Policy: The use of a written cybersecurity policy continues to increase — 31% of plans have such a policy, up from 22% three years ago.
10. Mobile Technology: Seventy percent of organizations use mobile technology to provide plan access, up from 63% the year before.
Other plan design and administration trends in this year’s survey included managed accounts and reenrollment. According to the PSCA, 50.1% of plans offered managed accounts to participants, up from 46.9% in 2022 and 43.6% in 2021. The number of plans who automatically reenroll participants annually also increased to 13%—up from 4% a decade ago.
“The increase in plan savings and participation rates reflects the overall strength of the 401(k) system, particularly in the face of economic headwinds and uncertainty,” added Will Hansen, PSCA’s executive director. “The flexibility that SECURE 2.0 offers employers in designing plans to meet both company goals and the needs of their participants will continue to reshape retirement and increase the financial security of retirees.”
More information on PSCA’s annual survey can be found here.
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