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PSCA Survey Says Auto Enrollment Escalates

More than half of plans with automatic enrollment use a default deferral rate more than 3%, up from 40.4% of plans in 2014, according to a new report.

The survey found that 66.8% of companies retain an independent investment advisor, and of those, 59.1% pay a fixed fee, while 35.1% pay a percentage of plan assets. The majority of plan expenses are paid by the company, with the exception of recordkeeping and investment consultant fees.

Advice ‘Slice’

The survey found that about a third (34.6%) of respondents offered investment advice. The widely anticipated survey by the Plan Sponsor Council of America found that advice was offered via a variety of media:

  • a registered investment advisor (28.8%)

  • a certified financial planner (27.8%)

  • a third-party web-based provider (16.6%)

Roth 401(k)s are now allowed by 60% of plans, according to the report.

Auto Escalates

While 57.5% of plans had an automatic enrollment feature, it was much more common in large plans (66.7%) than among smaller ones. Only about a quarter (25.5%) of plans with fewer than 50 participants have automatic enrollment. The most common default option remains a target-date fund. Not surprisingly, the allocation to TDFs increased to nearly 20% of assets. Target-date funds are now offered by 63.2% of plans, up from just 4.1% a decade ago.

Nearly 90% of employees are eligible to participate in their employer’s plan, and the average percentage of eligible employees who participate in their plan is 87.6%. Company contributions average 4.7% of gross annual pay. The average company contribution to 401(k) plans is 3.8%, and the average contribution in combination 401(k)/profit sharing plans is 5.4%.

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

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%)

  • actively managed domestic equity funds (78.0%)

  • actively managed domestic bond funds (74.7%)

  • actively managed international equity funds (73.4%)

According to the survey, assets are most frequently invested in actively managed domestic equity funds (21.4% of assets), target-date funds (19.8%), indexed domestic equity funds (12.4%), stable value funds (8.1%), and balanced funds (6.5%). The average allocation to target-date funds (19.8% of assets), which are offered by 63.2% of plans, is up from only 4.1% 10 years ago.

PSCA’s 59th Annual Survey reflects the 2015 plan-year experience of 614 DC plan sponsors.