Promising Progress Post-PPA Puts Plans, Participants Ahead

A new report finds some promising, and some still-troubling, post-PPA trends among a group of plan sponsors.

According to “Reference Point,” an annual benchmarking report based on T. Rowe Price’s full-service recordkeeping client data, about half (51%) of the plans it administers have adopted an auto-enrollment feature, a 28% increase since 2011, and roughly a third (30.2%) of plans have auto-enrolled participants at 6% or more, compared with just 17% in 2011.

Automatic Trends

When auto-enrolled, participants in the under-20 and 20-to-29 age groups participate at significantly higher percentages (76% and 84%, respectively) than those who are not auto-enrolled (3% and 30%, respectively). Plans with an auto-enrollment feature have a participation rate of 88%, while those that do not have this feature have a participation rate of just 48%.

Target-date investments continue to be the default of choice for 96% of plan sponsors.

More than two-thirds (69.3%) of plans had adopted an auto-increase feature in 2015, up slightly from the 63.3% that had done so in 2011, though while 36.5% of plan sponsors used a 2% auto-increase default rate in 2011, by 2015, that had slipped to 26.4%. Those trends matter because only 38% of participants increased their deferral rate in 2015.

By the end of 2015, half of the 401(k) plans recordkept by T. Rowe Price were offering their participants the option to make Roth contributions, an increase of nearly 49% since 2011. Additionally, 4 out of 10 plan sponsors are now matching at a threshold of 6%.

The average deferral rate held steady at 7%, and yet approximately one-third of participants are not deferring any money to their retirement accounts.

The average loan balance increased for the seventh straight year to $9,075, though the percent of participants taking loans during that time has remained stagnant at 24%. Roughly 47% of plan sponsors still allow two or more outstanding loans to be taken.

The report also notes that:

  • Younger participants (between 20 and 29 years of age) have a wider gap in participation rates when auto-enrolled (84%) versus not auto-enrolled (30%) than all age groups.
  • Younger participants are also more likely to be invested in target date funds (70%) than other age groups (36%).
  • Younger participants have a savings rate of 5%, considerably lower than older generations (7%-10%).
  • Participants under 20 and between 20 and 29 cashed out at very high rates in 2015: 82% and 45%, respectively.

Industry Comparisons

In the retail industry, only 35% of plans have adopted an auto-enrollment feature, compared with 51% of plans across all industries.

Within the finance and insurance industries, only 14% of participants have an outstanding loan, compared with 24% of participants across all industries.

Three-quarters (77%) of the manufacturing industry plans have adopted an auto-increase feature, compared with 69% of plans across all industries.

Within the utilities industry, there is a 92% participation rate for plans with auto-enrollment, compared with 78% for non-auto-enrollment plans. This is a much smaller gap compared with all industries, which have an 88% participation rate with auto-enrollment and a 46% participation rate without.

Data are based on the large-market, full-service universe — TRP Total — of T. Rowe Price Retirement Plan Services, Inc., retirement plans (401(k) and 457 plans), consisting of 662 plans and more than 1.6 million participants. T. Rowe Price Retirement Plan Services, Inc. currently serves nearly 1.9 million retirement plan participants across more than 3,500 plans.

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