Data & Research May 24, 2011

403(b) Plans Increase Use of Advisers and Online Communications

A 403(b) plan sponsor survey from the Profit Sharing/401k Council of America (PSCA) and The Principal reveals sponsors are increasingly asking for help from investment advisers.
Reported by

The Principal Financial Group, which sponsored the survey, said more than 45% of respondents use an independent investment adviser to help with fiduciary responsibilities, versus 41% in 2009. Forty-six percent of respondents indicated they have an investment policy statement, while 34.6% of plans are unsure if their plan has an IPS.   

Just over 77% of respondents use an auditor, recordkeeper or aggregator to prepare their Form 5500, up from 66.1% in 2009. The survey found 84.1% of plans file a form 5500. The form 5500 is prepared by the recordkeeper at 34.3% of organizations, by the auditor at 28%, and by a form 5500 aggregator at 14.9% of organizations.   

For more stories like this, sign up for the PLANADVISERdash daily newsletter.

While the most common participant education approaches are enrollment kits (89.6% of organizations) and on-site one-on-one meetings (63.1%), there has been an increase in the use of electronic methods to educate participants, with 59.5% using e-mail, versus 51.5% in 2009, and 50.2% using Intranet/Internet, versus 43.9% in 2009. Fifteen percent used Webinars in 2010, compared to 9.7% in 2009.  

“This year’s survey proves that 403(b) plan sponsors are still working hard to comply with the new regulations,” said David Wray, president, PSCA, in the press release. “Although the rate of change has slowed since our 2009 survey, there are still significant adjustments underway as plan sponsors respond to the needs of their participants and their plans.”

(Cont...)

Help for Participants  

The Profit Sharing/401k Council of America’s 2011 403(b) Plan Survey, sponsored by the Principal Financial Group, finds more sponsors added plan features or services to help participants with savings and investments.Twelve percent of plans responding to the survey have an automatic enrollment feature. Automatic enrollment is more prevalent for large plans (29.6% of plans with 1,000 or more participants).  

The most common default investment options are target-date funds (34.2% of plans), followed by lifestyle funds (28.9% of plans).The survey found just over 69% of plans offer a target-date fund as an investment option (up from 51.2% in 2009).  

Catch-up contributions for participants age 50 and over are permitted in 93% of plans, and 15.4% of eligible participants made catch-up contributions in 2010. Of organizations that permit catch-up contributions, 21.1% match them. In 2010, 16.9% of 403(b) plan sponsors surveyed permitted Roth after-tax contributions, up from 13.9% in 2009 and 10.9% in 2007. Roth availability is more common at large organizations with 27.8% of plans with 1,000 or more participants offering Roth.  Over 9% of participants made Roth contributions when permitted.  

Nearly 22% of organizations offer investment advice to participants. The most common type of advice offered is one-on-one counseling in person (88.5% of organizations).  

(Cont...)

Plan Stats  

Eighty-five percent of employees at organizations that responded to The Profit Sharing/401k Council of America’s 2011 403(b) Plan Survey are eligible to participate in their organization’s 403(b) plan. The average percentage of eligible employees with a balance in the plan is 74.7%. An average of 64.2% of eligible employees contributed to the plan in 2010. The average account balance for active plan participants is $70,794.    

Three-quarters of plans in the survey are governed by the Employee Retirement Income Security Act (ERISA), 15.6% are non-ERISA, and 10% of respondents were unsure of their plan’s ERISA status. Seven percent of non-ERISA plans are considering becoming ERISA plans.   

Nearly 83% of organizations make contributions to their 403(b) plans. Thirty-seven percent make matching contributions only, 29% make non-matching contributions only, and 16.7% make both matching and non-matching contributions to the plan.  The majority of organizations made contributions in 2010 when provided for in the plan including 96.5% of plans with only matching contributions and 94.1% with only non-matching contributions.  The average organization contribution per active participant in 2010 was $3,450, and the median contribution was $2,364.   

Nearly all (96.4%) plans permit participant contributions. Pre-tax contributions are permitted in 95.6% of plans, while Roth and 401(m) after-tax contributions are permitted in 19.5% of plans. Nearly 7% of plans require participants to contribute to the plan as a condition of employment. 

(Cont...) 

Fifty-seven percent of plans provide immediate vesting for non-matching employer contributions, and 60.5% of plans provide immediate vesting for matching contributions. Among plans that do not provide immediate vesting, graduated vesting is the most common arrangement for both matching and non-matching contributions.  

Plans offer an average of 26 funds for organization contributions and an average of 28 funds for participant contributions.  Twenty-one percent of plans have between 21 and 50 funds and 11.3% have more than fifty funds available for participant contributions.    

Three-quarters of plans allow participants to take hardship withdrawals, and 1.6% of plan participants took a hardship withdrawal in 2010 when permitted. Seventy-two percent of plans allow participants to borrow against their plan assets; 49.5% allow loans for any reason, while 22.6% allow loans only in hardship situations.   

The survey, sponsored by the Principal Financial Group, drew responses from a record number (712) of 403(b) plan sponsors, an increase of 29% from the previous year’s survey.   

Full survey results are may be purchased from PSCA at http://www.psca.org.
Data & Research May 24, 2011

Auto-Enroll Boosts Participation, Hurts Contribution Rates

An Aon Hewitt study found that participation in defined contribution (DC) plans has reached a record high of 75.8% among eligible employees.  
Reported by

Aon Hewitt’s analysis of DC saving and investing behaviors included more than 3 million employees across 120 large companies. The data show that more than three quarters (75.8%) of eligible employees participated in their company’s DC plan in 2010 — the highest level since Aon Hewitt began tracking this data in 2002. This is up from 73.7% in 2009 and 67.2% in 2005.

Aon Hewitt says this record-high participation rate is due in large part to the rapid adoption of automatic enrollment. Three in five employers automatically enrolled employees into their DC plans in 2010, up from 24% in 2006. For employees who were subject to automatic enrollment, Aon Hewitt’s analysis found that 85.3% participated in their DC plan, 18 percentage points higher than those that were not subject to automatic enrollment. However, most companies (85% of those offering automatic enrollment) only automatically enroll new hires, resulting in the gradual uptick in participation rates.

Want the latest retirement plan adviser news and insights? Sign up for PLANADVISER newsletters.

“Automatically enrolling employees in company-sponsored DC plans is an easy way for companies to encourage workers to save more. However, this really is only a nudge in the right direction,” explained Pamela Hess, director of retirement research at Aon Hewitt.

(Cont...)

Contribution rates  

Aon Hewitt's analysis also found that before-tax contributions to DC plans were unchanged from 2009 at 7.3% of pay, but are still down slightly from pre-recession levels in 2007 (7.7%). For workers that are automatically enrolled in the plan, automation may actually hinder the amount of money they are contributing, the data suggest. Participants who were subject to automatic enrollment contributed one percentage point less, on average, than their actively enrolled counterparts (6.8%, compared to 7.8%). This significant gap is due to low default rates among the bulk of employers. More than three quarters of plans (76%) default contribution rates at 4 % or less.

"Saving even just one percent less over a career has a dramatic impact on accumulation," cautioned Hess. "Ultimately, it can lead to nearly a 15 percent loss in retirement income."

In addition to generally low contribution rates, many workers still aren't contributing enough to their 401(k) plan to receive matching employer contributions. Overall, nearly three in ten (29.4%) of plan participants contributed below the company match threshold, up slightly from 2009 (28.2%).

Among participants who were defaulted, this picture is bleaker. Forty-one percent of participants who were automatically enrolled are not saving enough to receive the full match from their employers, compared to 25% of participants who proactively enrolled.   

(Cont...)

Other findings from the Aon Hewitt study include:

  • Cumulatively, workers on average saved 10.4 % of pay, including 3.8% from employer contributions.
  • The average employee's total plan balance was $76,020 at the end of 2010, while the median balance was $24,680.
  • The three largest asset class exposures (equally weighted) were premixed portfolios (33.3%), large U.S. equity (14.2%) and GIC/stable value funds (13.6%).
  • The average worker's overall exposure to equities rose 67.4% in 2010, up from 66.9% in 2009.
  • The median rate of return earned by employees in 2010 was 13.5%, down from 24.3% in 2009. The median, annualized, three-year rate of return earned (from 2008-2010) was just 1.7%, illustrating the dramatic impact losses in 2008 had on participant results.
  • When available, 60.1% of workers invested at least partially in premixed portfolios, mainly driven by the popularity of target-date funds. Among those using premixed portfolios, just under half (46%) were fully invested in a single portfolio. 
  • Despite strong market returns in 2009, only 14.2% of employees made any sort of fund transfer in 2010, down from 16.2% in 2009.
  • Nearly three in ten participants (27.6%) had a loan outstanding at the end of 2010, the highest in the ten years that Aon Hewitt has been tracking loans.
  • In 2010, 6.9% of workers took a withdrawal from their DC plan, close to the record high of 7.1% in 2009. Among these, 20% were hardship withdrawals.

 

«