DC Contribution Rates On the Rise

Defined contribution (DC) salary deferral rates are climbing strongly, with 32% of participants increasing their deferral rate in the past year, according to a Market Strategies International study.

Market Strategies International notes this increase is 11% greater than the number of DC plan participants who expressed the intention to increase their 2014 contributions in a 2013 survey taken by the firm. The increase is driven by the younger generations, the firm says, given that Generations X and Y have a preference for automatic plan enrollment features.

“This spike in contribution rates is likely due to the improved economic climate in the U.S. and growing account balances,” says Linda York, vice president of syndicated research at Market Strategies. “The reason this increase is coming primarily from the younger generation may be because these cohorts are starting to understand the value of investing in their DC plans, and the importance that their savings in these plans will have on their financial well-being in retirement.”

More than one in four (26%) participants who did not make a change to their contribution levels within the last year intend to do so in the next 12 months, the study finds. 

“In an era where many providers are choosing to get out of the DC plan record-keeping business, those that maintain their presence may be sitting on a potential gold mine with their Gen X and Gen Y participants,” says York.

The DC Participant Planscape Report is an annual Cogent Reports study by Market Strategies International. The survey was conducted online with 4,636 DC plan participants from September to October 2014. The participants are 18 years or older, contribute at least 1% to a current plan, and/or have $5,000 or more in at least one former plan.