Strategic Insight, an Asset International company, examined plan sponsor survey results from collected by PLANSPONSOR magazine over years 2009 through 2013. The analysis focused on identifying plan design features that saw aggregate improvements or declines, especially employer matching contributions, formulas used to calculate matches, payment schedules and vesting practices.
In all, the analysis identified a positive trend across the defined contribution (DC) investing landscape in terms of these features. For instance, the number of plan sponsors not offering a matching contribution has significantly decreased over the past five years. In 2009, 26% of plan sponsors said they did not offer a match. By 2013, only 10% of plan sponsors did not offer a match, reflecting a decrease by nearly two-thirds, Strategic Insight finds.
“Increasing percentages of employers offering matching contributions illustrate plan sponsor support in providing retirement security,” explains Bridget Bearden, Strategic Insight’s head of defined contribution retirement research.
The survey data examined by Strategic Insight also shows 68% of employers offering a match made no change to their contribution practices during the previous five-year period. However, 13% of plan sponsors changed the matching formula to bring about a higher contribution rate. Just 4% of plan sponsors said they had yet to reinstate a suspended or reduced match coming out of the financial crisis.
Plan sponsors reported more generous matching formulas in 2013 compared with prior years. In 2013, about one in five plan sponsors indicated they matched “100% or more of participants’ first 6% of salary.” Employers matching “50% to 99% of the first 6%” increased from 52% in 2009 to 58% in 2013, Strategic Insight finds. And as plan sponsors gradually improved their match formula, the occurrence of less attractive matching formulas has declined. In 2009, 31% of plan sponsors indicated their match was “less than 50% of the first 6%.” By 2013, the incidence of a “less than 50% match” declined to 22%.
Strategic Insight finds most plans (80%) make matching contributions within three months, with nearly all (77%) of those plans that pay matching contributions within three months doing so on an “each pay period” basis. The percentage of plan sponsors that match annually declined from 15% in 2012 to 14% in 2013—another presumably favorable trend for retirement outcomes, as dollars that are put into participants’ retirement accounts sooner have a longer time to grow than matching dollars contributed later.
Bearden notes that “better matching formulas and schedules reflect a commitment to helping participants accumulate savings in a timely and efficient manner.”
“While these factors are critical for creating a strong defined contribution plan, employers must also be prepared to take more direct steps to educate and encourage their employees to become better savers,” Bearden says.
Strategic Insight's analysis also shows positive change in vesting practices. Vesting refers to the accrual process of employer-paid contributions to the employee’s retirement account. A participant is considered fully vested when they have 100% ownership rights of the assets in their account. Over the last several years, Strategic Insight finds more plan sponsors have adopted immediate vesting and moved away from prolonged vesting schedules.
The percentage of plan sponsors that vest employees immediately upon enrollment increased from 29% in 2010 to 33% in 2013. On the other end of the spectrum, vesting as a long-term retention tactic fell over the same period. The occurence of plan sponsors that vest employees after more than five years declined from 19% in 2010 to 15% in 2013.
Every year, PLANSPONSOR magazine fields a defined contribution survey, with participation from thousands of defined contribution plan sponsors across various sizes, industries and regions. The most recent survey fielded in 2013 captured the sentiment of more than 5,000 plan sponsors.
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