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Data & Research August 24, 2017
Auto-Plan Features on the Rise in 403(b)s
More than two in 10 403(b) plans now automatically enroll participants.
Reported by Lee Barney
In
a survey of 608 non-profit organizations conducted by the Plan Sponsor Council of
America (PSCA), the council found these non-profits are making improvements to their 403(b)
plans, particularly with respect to auto-plan features.
Twenty-one percent of 403(b) plans now automatically enroll their participants,
up from 19% in 2016 and 16.2% in 2014. Among the 21% of plans that
automatically enroll participants, 52% pair that with automatic escalation, up
from 43% in 2015.
The percentage of plans with a default deferral rate of less than 3% dropped in
half, while the percentage of 403(b) plans with deferral rates north of 3%
increased from 21.6% in 2016 to 34%. In addition organizations saw average employer
contributions rise from 4.7% in 2015 to 5% in 2017.
The 403(b) plans with a qualified default investment alternative (QDIA) now
overwhelmingly use target-date funds (65.8%) as opposed to money market funds
(9.8%).
“Over the past several years, the PSCA survey has shown a steady increase in
the use of automation and plan design enhancements,” says Aaron Friedman,
national practice leader at Principal Financial Group, which sponsored the
survey. “Automation is leading to greater plan enrollment, deferral rate escalation
and employee contributions. The addition of these features tangibly helps
participants boost retirement readiness in practical and customized ways.”
The 2016 PLANSPONSOR Defined Contribution Survey also found that 27.2% of 403(b) plans offer in-plan income products that guarantee monthly income, compared to 7.3% of DC plans overall. More than 12% offer in-plan income products that guarantee a base benefit, compared to DC plans overall.