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Plan Focus | PLANADVISER September/October 2017

Employer Generosity Grows

Data show overall upward trend in company match contributions

By PA editors@assetinternational.com | September/October 2017

Employer dollars as a percentage of employee defined contribution (DC) retirement plan savings increased from 2009 through 2014, then slightly dipped in 2015, according to data from BrightScope—like PLANADVISER, a Strategic Insight company. In 2009, employer-contributed matches totaled 64% of employees’ savings for that year, and this percentage reached 77% in 2014. However, it ticked back to 73% in 2015. In other words, despite the minor retreat, employers are supplying a larger percentage of dollar contributions to the DC marketplace than ever before. Over time, this will likely be a powerful multiplier for participant outcomes and industry flows.

The employer match and automatic deferral rates are often the most powerful guide to a participant’s savings rate. But, the rise in automatic enrollment, automatic escalation and better compensation packages could all explain why company matches have increased. As seen in the accompanying chart, both participants’ and employers’ contributions have grown, year over year. Also, it is anticipated that plan sponsor utilization of automatic features and higher deferral rates will continue to influence overall savings growth—particularly that of new employees benefitting from these plan design features.

Overall, qualified defined contribution retirement plan assets have continued to soar, to over $5 trillion, representing more than 700,000 plans and 85 million participants. With net assets continually increasing, the market has reached escape velocity. Demography is working in favor of retirement cash flows, and BrightScope expects that they are on pace for continued growth. These trends look promising for the health of the retirement planning market, and the livelihood of plan advisers.

While net flows in defined contribution plans have been drifting lower, 2015 data BrightScope obtained from the Department of Labor (DOL) reveal some encouraging developments.

In spite of total participant outflows increasing in 2014, the defined contribution market has grown to such an extent that it is unaffected by a slightly negative outflow. Based on the same BrightScope Labor Department data, cash contributions to DC plans have grown steadily—on average, 5% annually—from 2009 through 2015.

After the Great Recession, most near-retirees deferred their retirement decision. That promised a pent-up demand for retirement plan assets later in the decade, and the industry is seeing the release of that demand now.

% of Participants' Annual Savings Contributed by Employer

64%
68%
66%
65%
66%
77%
73%
2009
2010
2011
2012
2013
2014
2015
Source: Investment Company Institute

Employer vs. Participant Contributions

Source: BrightScope, a Strategic Insight company