403(b)s Embrace ‘Auto’ Features

In its survey of 608 not-for-profit organizations, the Plan Sponsor Council of America (PSCA) found that many of those organizations are improving their 403(b) plans, particularly by enhanced use of automatic plan features.

Twenty-one percent of 403(b)s now automatically enroll their participants, up from 19% in 2016 and 16.2% in 2014. Among that 21%, 52% pair using auto-enrollment with automatic escalation, up from 43% in 2015.

The percentage of plans with a default deferral rate of 3% or less dropped by half since 2015, while the percentage of those defaulting north of 3% increased from 22% in 2016 to 34%. In addition, organizations saw average employer contributions rise from 4.7% in 2015 to 5% this year.

The 403(b) plans with a qualified default investment alternative (QDIA) now overwhelmingly use target-date funds (TDFs) as opposed to money market funds—66% vs. 10%.

“Over the past several years, the PSCA survey has shown a steady increase in the use of automation and plan design enhancements,” says Aaron Friedman, national practice leader at Principal Financial Group, which sponsored the survey. “Automation is leading to greater plan enrollment, deferral rate escalation and employee contributions. The addition of these features tangibly helps participants boost retirement readiness in practical and customized ways.”

403(b) Adoption of Plan Design Enhancements