October 22, 2012
--- The goals and designs of defined contribution (DC) plans are evolving as
defined benefit (DB) plans are increasingly replaced. ---
According to Diversified’s “Report on
Retirement Plans 2012: Bridge to Your Retirement Success,” while having a high
participation rate is still viewed as the best indicator of plan success, its
significance is falling. In 2012, 52% of plan sponsors believe
participation rate is the best indicator of plan success–down from 58% in
2011. During this same period of time, the number of plan sponsors
selecting average deferral rate as the best indicator of plan success climbed
from 14% in 2011 to 20% in 2012.
Nearly all large corporate plan
sponsors (95%) offer a fixed or discretionary employer contribution. Among
those who offer a fixed contribution, 84% use a matching formula. The two
most common matching formulas are dollar-for-dollar on the first 5% to 6% of
pay (20% of plans use this formula, up from 11% in 2011), and fifty cents on
the dollar on the first 6% of pay (17% of plans use this formula, up from 15%
in 2011).
More than half of all large corporate
401(k) plans (53%) offer financial advice, and an additional 33% are
considering adding this to their plan’s offering. The use of automatic
enrollment and automatic deferral increases is also growing. Forty-five
percent of large corporate 401(k) plans sponsors have implemented automatic
enrollment and 40% are considering implementing this feature.
Automatic deferral increases have been
implemented by 30% of plan sponsors, and an additional 43% are considering
adding this feature in the future. However, among plans taking advantage
of automatic enrollment, 58% enroll participants at a default deferral rate of
3% or less–far lower than the 6.7% average deferral rate for self-enrolled
participants.
The percentage of employees at large
corporations participating in their employers’ 401(k) plans remains unchanged
since 2011 at 69%; and the average deferral rate dropped sharply from 8.8% in
2011 to 6.7% in 2012. With deferral rates falling, 56% of plan sponsors
report that motivating employees to save adequately is “extremely” or “very”
challenging, which surpassed keeping up with regulatory challenges (52%),
helping participants invest wisely (43%) and meeting fiduciary responsibilities
(38%).