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Data & Research February 13, 2018
Default Rates for Auto Plan Features Moving Up
More plans are auto enrolling at a greater than 3% default deferral rate, and 13% of plans are increasing deferrals at more than 1% annually, a PSCA survey found.
Reported by Rebecca Moore
Availability and use of automatic enrollment has increased dramatically the last 10 years—from 35.6% of plans using the feature in 2007 to 59.7% using it in 2016—according to the Plan Sponsor Council of America’s (PSCA) 60th Annual Survey of Profit Sharing and 401(k) Plans, reflecting 2016 plan experience.
Three percent of pay was the most common default deferral rate for auto enrollment for years, but plans have started moving to higher default rates in an effort to help increase savings rates and boost overall participant outcomes. In 2016, 35.2% of plans used a 6% default rate, and 40.2% used a default rate of more than 6%.
The number of plans using automatic deferral escalation has also increased—from 49.7% in 2007 to 73.4% in 2016, the survey shows. Twelve percent auto escalate for all under-contributing participants only, and one-third auto escalate only if the participant elects it.
Three-quarters of plans auto escalate by 1% each year, while 8.6% auto escalate by 2% and 5% auto escalate by 3%. More than four in ten (41.8%) cap auto increases at 10%, while 19.4% cap it at more than 10%.
Ninety percent of employees at respondent companies are eligible to participate in their defined contribution plans. About two-thirds of companies allow part-time employees to participate. The average percentage of employees who have a plan balance is 88.7%, and an average of 84.9% of participants made a contribution to their plans in 2016. The average percentage of salary deferred (pre- and post-tax) was 6.8%.
Nearly 35% of respondent companies offer investment advice to participants. Providers of investment advice used include a registered investment adviser (30.8%), a certified financial planner (28.8%) and a third-party web-based provider (20.2%). The most common delivery methods for advice are one-on-on counseling (68.5%), internet providers (45.7%) and telephone hotlines (48.7%). One-fourth of participants use advice when it is offered.
The 60th Annual Survey of Profit Sharing and 401(k) Plans also covers topics such as recordkeeping, monitoring investment policy statements, company stock, plan loans, distribution and withdrawals, participant education and communication, and plan expenses. The survey reflects the 2016 plan-year experience of 590 DC plan sponsors. The full printed survey is available for pre-order, or electronic copies are available for order here.