Employer Contributions on the Rise
The decline of pension plans—often lamented by industry commentators—is usually told as a story of employers decreasing their financial interest in employees’ retirements. However, data from BrightScope, a Strategic Insight company like PLANADVISER, shows that employers contribute billions of dollars a year to defined contribution (DC) plans and that their contributions continue to rise each year.
Compared with the amount that participants defer, employer contributions are actually quite sizeable. For instance, in 2017, employers contributed $158 billion to DC plans, fully 65% as much as the $242 billion that employees did.
The data also show that the amount employers and participants deposit into 401(k) plans has risen yearly and that, as a percentage of participant deferrals, employer matches have held steady, ranging from 64% to 67% of what their participants defer.
Looking back to 2011, six years prior to the latest data, employers contributed $113 billion to DC plans, and participants, $169 billion; those employer contributions were 67% as much as what participants deferred to their DC plans.
Certainly, the increase in employer, as well as employee, contributions may be due to the wider use of automatic enrollment and automatic escalation. The 2018 PLANSPONSOR Defined Contribution Plan Benchmarking Report notes that 41.3% of plans have adopted auto-enrollment. This percentage increases with plan size. For example, only 16% of plans with under $1 million in assets auto-enroll their employees, but 53% of plans with $25 million to $50 million in assets auto-enroll, as do 65.1% of plans with more than $1 billion in assets.
Likewise, just over one-third, 33.6%, of plan sponsors auto-escalate participants’ deferral rates, the report says. This is true for only 11.7% of plans with less than $1 million in assets. Auto-escalation increases to 40.4% among plans in the $25 million to $50 million range, and to 70.1% among plans with assets over $1 billion. Nearly 70% of plans overall—68.1%—auto-escalate participants’ deferrals by 1% a year.
However, the initial deferral rate that sponsors use remains low, with the most common being 3%, used by 40.7% of plans, the report says.
Certainly, all of these developments in plan design support the BrightScope data showing increases in both employer and employee contributions to DC plans.
Employer to Participant Contributions ($b)
