Jack Towarnicky, Executive Director of the Plan Sponsor Council of America, shared some highlights of the organization’s recently completed 2017 Annual Survey of Profit Sharing and 401(k) Plans in an April 16 workshop session at the NAPA 401(k) Summit.
Joined by moderator Doug Prince, CEO of ProCourse Fiduciary Advisors, LLC, Towarnicky focused on the impacts of auto enrollment and auto escalation features on 401(k) plan participation and contributions.
Since the implementation of auto features following the Pension Protection Act of 2006, the percentage of plans with an auto enrollment feature has essentially doubled, rising from 32% in 2007 to 63% in 2016. Nonetheless, Towarnicky noted, participation rates have remained around 85%. And even though 60% of DC plans now use automatic features, 42% are using nondiscrimination safe harbors. The bottom line: Not enough U.S. workers are saving, and few are saving enough.
One possible cause of the 85% participation rate: 85% of plans that have adopted auto enrollment limit it to new hires, according to the survey.
Towarnicky noted that in 2016, the percentage of plans with a default deferral over 3% topped 50% for the first time, rising from 32.2% in 2011 to 53.5% in 2016. And nearly three out of four plans now have an auto-escalation feature, rising from 52.2% in 2011 to 73.4% in 2016.
Prince and Towarnicky used a smartphone-based instant polling app throughout the session to gauge the adoption of auto features and Roth contribution defaults by attendees’ clients, displaying the results in real time for attendees to see. Here are the responses:
Percentage of your clients who have adopted one or more automatic features:
None: 6%
1-24%: 43%
25-49%: 31%
50-74%: 11%
75-99%: 8%
100%: None
For your clients who have adopted automatic enrollment, what is the mode or most frequent default contribution percentage?
<3%: 3%
3%: 57%
4%: 15%
5%: 13%
6%: 10%
>6%: 3%
For your clients who have adopted automatic enrollment, how many use a Roth 401(k) contribution default (not pre-tax)?
90+%: none
75-89%: 3%
50-74%: none
25-49%: none
10-24%: 3%
1-9%: 7%
None: 87%
Prince flagged a concern that has resulted from the increased use of auto features: he said he has found that auto enrollment has led to more problems created by a lack of a properly executed beneficiary designation after a participant’s death. “It may be that the next issue will be ‘auto-beneficiary designation,’” he said. In this regard, Towarnicky commented, a default solution can work if there is no valid beneficiary designation on file.
