Plan Sponsors’ Use of Best Practices Continues to Climb

Automatic enrollment, higher initial deferral rates and financial counseling are just a few that more employers are adopting.

Plan sponsors continue to embrace best practices when it comes to running their retirement plan, Alight Solutions found in a survey of 333 plan sponsors. Sixty-eight percent of sponsors now automatically enroll their participants into the company plan—a 10% increase since 2015. While 37% of sponsors continue to use 3% as the initial deferral rate, 33% have switched to a 6% rate.

Automatic escalation remains steady, however. Among plans with automatic enrollment, 74% combine it with auto-escalation—a finding virtually unchanged from the 73% in 2015. However, sponsors now set the bar higher, with 68% capping escalations at 10% or more—only 43% did so in 2007.

“Many companies realize they need to make it easier for workers to save for retirement, whether it’s simply getting [them] into the plan or helping them save at robust rates,” says Rob Austin, director of research at Alight.

In addition, more companies have moved beyond just automatically deferring participants into target-date funds (TDFs), to ensure they put their financial house in order, Alight says. Today, 61% of sponsors offer their workers one-on-one financial counseling, up from 22% in 2007. Sixty percent provide online guidance, up from 18%, and 58% offer managed accounts, up from 11%. Another 33% now use white-labeled funds.

Further, 73% of sponsors allow new hires to join their plan immediately, up from 60% in 2007. Seventy-seven percent offer participants a Roth option, whereas 58% did in 2015.

To discourage money from leaving the plan, 33% of sponsors now have a waiting period between participant loans. Sponsors also increasingly consider the needs of workers who have retired from their company: 69% now allow partial distributions from their 401(k), and 65% let terminated workers continue loan repayments—up from 45% in 2015.

The executive summary of Alight’s report, “2017 Trends and Experience in Defined Contribution Plans,” can be downloaded here.