April 10, 2018 –
Takeaway: On February 12, 2018, the Plan Sponsor Council of America (PSCA) released the results of its 60th Annual Survey of Profit Sharing and 401(k) plans, reflecting the 2016 plan-year experience of 590 plan sponsors, 222 of which had more than 1,000 participants.
Background: The survey results reveal that participation rates for 401(k) plans ticked up in 2016, with 88.7% of eligible employees maintaining an account balance and 84.9% making contributions during the year. Additionally, automatic features experienced greater utilization with automatic enrollment reaching 59.7% in 2016. Not surprisingly, plans with automatic enrollment have higher participation rates (89.1% compared to 78.9%). Automatic contribution escalation also markedly increased, from 68.3% in 2015 to 73.4% in 2016.
Other key findings from the survey include:
- The availability of Roth 401(k) contributions has doubled over the decade from 30.3% in 2007 to 63.1% in 2016—and that number is even higher in large plans with more than 5,000 participants (68.1%). When a Roth 401(k) is available, 18.1% of participants utilize this feature.
- The average participant deferral rate in 2016 was 6.8% with the average deferral for higher paid employees coming in at 7.0%, compared to lower paid employees at 6.1%, while the average company contribution was 4.8%. Eighty-two percent of 401(k) plans provide a matching contribution, and 45.5% provide a non-elective contribution.
- Almost three-fourths (73.1%) of plan sponsors offer target date funds as an investment option, a 10% increase from 2015 (63.2%). And the average allocation to target date funds continued to increase, up to 22.2% in 2016 from 19.8% in 2015. Nine percent of plans reported offering a target risk or lifestyle fund.
- Nearly 40% of plans offer investment advice or a professionally managed account to participants, and more than half of plans with over 5,000 participants offer managed accounts.
- The number of plans that enlisted services of retirement plan advisors and consultants in 2016 reached 69.5%. Over one-third (36.0%) of institutions hire their advisor in an ERISA 3(21) capacity, while 20.2% hire their advisor in an ERISA 3(38) capacity.
- More than one-third of plans use mobile technology to support participants, up from 20.1% in 2014. Nearly 23% of plan sponsors also offer a comprehensive financial wellness program beyond the 401(k) plan.
Bottom Line: The 60th Annual Survey of Profit Sharing and 401(k) Plans reveals promising plan trends, such as increased adoption of auto features and the addition of professionally managed investment strategies like target date funds.
~ Tom Szkwarla