Benefits have long been a powerful recruiting and retention tool, and in the midst of a tight labor market, the Plan Sponsor Council of America’s 65th Annual Survey of 401(k) and Profit Sharing Plans found record high rates of retirement savings alongside innovative plan designs.
The survey found participant and employer contribution rates were at all-time highs in 2021 with a combined average savings rate of 13.9% of pay, and 2021 saw the highest employer contribution rate in the history of the survey (5.6% of pay). Not only did most employers make planned contributions in 2021, 13% increased profit-sharing contributions, and 5% increased the match. Nearly 90% of eligible participants made plan contributions, with an average deferral rate of 8.3% of pay.
Not only were contributions at record highs, hardship withdrawals and plan loans were down after a slight uptick of participants accessing their accounts during the pandemic. The combination of increased contributions and decreased withdrawals bolstered average account balances to nearly $195,000, up from $180,000 in 2020.
- Plan Participation Up: 89.2% of eligible employees made contributions to the plan in 2021 (up from 88.5% in 2020) with an average deferral rate of 8.3% of pay (up from 8% in 2020).
- Distributions Down: Just 1.9% of participants took a hardship withdrawal in 2021 (down from 2.6% in 2020 and 18% borrowing against their account balances (down from 23.6% in 2020).
Design Signs
Plan sponsors also continue to add plan design features designed to boost both worker retention and savings rates, including moving towards immediate vesting (10-point jump in three years); an increase in Roth availability; auto-enrolling at a rate high enough to obtain the full match; and increasing availability of managed accounts.
- Vesting: The use of immediate vesting increased from 41% in 2020 to 44% of pay in 2021.
- Roth: Roth availability continues to climb and is now an option in 87.8% of plans; additionally, the percentage of participants making Roth contributions increased to 27.7%. Nearly 60% allow in-plan Roth conversions.
- Managed Accounts: Nearly half of plans offer managed accounts (48.8%), up from 43.6% in 2020.
- Auto Matching: 65% of plans with automatic enrollment set the default deferral rate high enough so that participants receive the full possible company matching contribution, up from 57.1% in 2020.
- Rollovers Rising: Nearly half of plans (44.6%) actively encourage rollovers, including 42.7% of large plans (up from 35.6% of large plans in 2020).
In addition to strengthening plan designs, employers are providing education focused on increasing financial literacy, and more are providing investment advice and financial wellness programs.
- Education Priority: The most common reason for providing plan education is to increase overall financial literacy (77.4% of plans).
- Investment Advice: 44.2% offer investment advice, up from 32.3% last year.
- Financial Wellness: 27% of organizations offer a comprehensive financial wellness program, including more than half (55.4%) of large plans.
PSCA’s 65th Annual Survey of 401(k) and Profit Sharing Plans reports on the 2021 plan-year experience of 557 plans. The full report is available for purchase at: https://www.psca.org/research/401k/65thAR.
