Account owners and plan sponsors alike are seeing value in plan design features that are helping boost plan participation and savings rates, according to an annual savings trends report.
Ascensus’ “Inside America’s Savings Plans,” which provides insight into the savings behaviors of account holders on the firm’s platform, finds that 401(k) plans designed with automatic enrollment features see an average participation rate of 80%. This level is 10 percentage points higher than the 70% participation rate in plans without automatic enrollment. Employers that offer both auto-enroll and auto-increase experience 81% average participation.
Employer matching contributions not surprisingly provide an even bigger boost in plan participation when coupled with auto features. Ascensus finds that when business owners leverage both auto features and funds matching contributions, they see the highest overall plan participation rate at 84%. What’s more, plans that fund a match realize 17% higher participation than plans that do not, the study notes.
Advisor Fees
The report notes that since the introduction of new fee disclosure rules more than six years ago, both fee-based and commission-based financial advisors continue to reevaluate their compensation structure and service models.
According to the firm’s data, fee-based median advisor compensation based on plan size ranges from 50 basis points for plans with $3 million or less in assets to 20 basis points for plans with $20 million or more in assets. The commission-based median is not as wide of a swing, with the commissions ranging from 30 basis points for plans with $3 million or less in assets to 24 basis points for plans with $20 million or more in assets. Similar results were also seen based on plan participant count.
For plans with between $10 million and $20 million in assets, the median fee structure was running even for both commission-based and fee-based at 25 basis points.
The report further reiterates that low-cost investments remain in high demand, with retirement-focused financial advisors in recent years shifting their primary focus from the plan’s lineup selection to employee support to help ensure better retirement outcomes. This trend reportedly has contributed to the renewed popularity of passive options.
As of the close of 2011, just over 4% of Ascensus’ overall platform assets were invested in passive or index options, but this jumped to more than 25% of assets at year-end 2017.
Savings Rates
In 2017, savers in the 25-to-34 age group were the most likely to be on the right track, with over 27% finding that they were saving adequately to meet their current goals, the study notes. Those under age 25 have the most work to do, with more than 96% not on track to meet their savings goals.
Not surprisingly, savings rates were highest among older employees, with savers ages 55 to 64 saving an average of 7% of their income and those ages 65 or older saving 9%. Young Millennials under the age of 25 have the lowest average savings rates at just 4%. Ascensus does observe that these Millennial employees are likely somewhat limited in their ability to save at a higher rate as many of them might be encumbered with student loan debt.
Top Industries
As for who’s saving the most by industry, employees in the finance and insurance industry have the highest average account balances at $90,527 — a 14% increase from 2016.
The study found that savers in the professional, scientific and technical services have made strong progress on their retirement savings, with an average account balance just over $79,200. The health care and social assistance industry ranks third, with an average account balance just under $73,000. These industries are three of the largest and highest-paying, so employees are more likely to have more earnings to save in their 401(k)s, the study observes.
Yet, even industries with the lowest average account balances experienced significant growth in 2017. Employees in the accommodation and food services industry have the lowest average account balance, at just over $20,500, but the study notes that this is a 16% increase from 2016.
