PSCA Shows Auto Enroll, Higher Participation Link

The Profit Sharing/401k Council of America’s (PSCA) survey of profit-sharing and 401(k) plans provides evidence of the link between automatic enrollment and higher plan participation rates.

Following a big increase in 2006, more plans of all sizes added automatic enrollment in 2007, according to press release. More than half of large plans utilize this feature and usage by small plans doubled.

In addition, the survey found 81.9% of eligible employees have balances in their 401(k) plans. Pre-tax participant deferrals average 5.6% of pay for non-highly compensated workers (the first increase since 2004) and 7% percent of pay for highly compensated workers.

“The increase in the number of companies utilizing automatic enrollment continues to be strong. It is encouraging that participation continues to climb, due in part to the increase in automatic enrollment,” said David Wray, president of PSCA, in the release.

The survey also found company contributions average 4.4% of payroll, which is highest in profit sharing plans (8.6%) and lowest in 401(k) plans (3.2%). In plans permitting participant contributions, the most common formula for company contributions is a fixed match only (24.8%). Among fixed match formulas, the most common are $.50 per $1 up to the first 6% of pay (26.2% of plans); $1 per $1 up to the first 4% of pay (10.4% of plans); and $1 per $1 up to the first 3% of pay (8.1% of plans).

Catch-up contributions for participants aged 50 and older are permitted in 99.1% of plans, and 33.5% of these plans offer a match on the catch-up contributions. The percentage of eligible employees who make catch-up contributions ranged from 43.1% at the smallest companies to 12% at the largest.

Almost a third (30.3%) of plans permit Roth 401(k) contributions, with 12.6% of those eligible contributing.

Immediate vesting is present for matching contributions in 43.6% of plans and for non-matching contributions in 20% of plans.

Plan Investments

According to the annual survey from PSCA, plans offer an average of 18 funds for participant contributions. The funds most commonly offered are actively managed domestic equity funds (76.8% of plans), actively managed international equity funds (73.4% of plans), indexed domestic equity funds (70.4% of plans), and actively managed domestic bond funds (63.8% of plans).

Self-directed brokerage windows are offered in 15.6% of plans, while open mutual fund windows are offered in 5.3% of plans—2% of plan assets are invested through brokerage windows, and 0.9% of plan assets are invested through mutual fund windows.

The typical plan has approximately 65% of assets invested in equities. Assets are most frequently invested in actively managed domestic equity funds (29.1% of assets), indexed domestic equity funds (10%), stable value funds (8.6%), and balanced stock/bond funds (8%).

PSCA’s 51st Annual Survey of Profit Sharing and 401(k) Plans is available for purchase for $375 for non-PSCA members and $145 for members here or by calling 312.419.1863.