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A Record Savings Rate for 401(k)s

As the 401(k) commemorates its 40th anniversary, new research finds a record-setting pace for retirement plan savings.

According to the 61stAnnual Survey of Profit Sharing and 401(k) Plans from the Plan Sponsor Council of America (PSCA), part of the American Retirement Association (ARA), employers are contributing an average of 5.1% of pay to their employees’ 401(k) accounts, the highest percentage ever recorded in the history of the survey, the longest running of its kind.

This rate of contribution, combined with an average savings rate by participants of 7.1% in the survey, yielding a total savings rate of more than 12%.

Nearly three-fourths (73.1%) of plans now retain an independent investment advisor to assist with fiduciary responsibilities – up from 69.5% in 2016. Among those, 17% indicated they use a 3(38) advisor and 27% use a 3(21) advisor. However, more than a quarter of respondents were unsure about which kind of advisor they use.

Roths Rising

The survey also found that plan sponsors continue to add design features to increase participation and savings rates, such as the availability of Roth contributions, which has doubled in the past decade and is now available at 70% of all plans – including small plans, which once lagged large plans in adopting Roths. One in five employers are actively encouraging participants to keep their assets in the plan after retirement.

Employers also continue to embrace automatic enrollment, and more than half now do so with default deferral rates above the traditional 3% threshold – twice as many as a decade ago.

Other Findings

The survey also found that:

  • Nearly a third of plans provide a suggested savings rate for participants – and for more than 4 in 10, the rate is higher than 10%.

  • One out of five employers are actively encouraging participants to keep assets in the plan at retirement.

  • More than 6 out of 10 plans now use automatic enrollment to boost participation, though while less than one-third of plans with fewer than 50 participants do so.

  • One in five employers say they are actively encouraging participants to keep assets in the plan at retirement.

  • Nearly 40% of plans provide immediate vesting for matching contributions.

  • Seventy-one percent of plans offer target-date funds, with an average of 22.1% of plan assets invested in them. Nearly 40% of plans offer a professionally managed account alternative to participants. Seventy percent of plans use a Qualified Default Investment Alternative (QDIA), and the QDIA is a target-date fund at 76.6% of those plans.

  • Fewer than 10% of plans offer an in-plan annuity option to participants.

  • The use of mobile technology to provide plan services to participants has doubled since 2014; mobile technology is now used by 43.6% of companies.

PSCA’s 61st Annual Survey reflects the 2017 plan-year experience of 605 DC plan sponsors. The full printed survey is available for pre-order (electronic copies are available now) here.