LONGVIEW – Recently, Plan Sponsor Council of America released results of their annual survey of profit-sharing and 401(k) plans that reflect retirement plans in 2012. Good news emerged from the data:
87.6% of eligible employees had balances in their plans. On average, 80.7% of eligible employees contributed. More companies offer a Roth 401(k) feature than in the past, and more than 95% of companies contributed to their employee accounts. Additionally,
allocations to company stock appear to be declining. Business owners may want to review the following survey data. See how your plan features and participation rates compare to other retirement plan sponsors. For
a copy of the full report, visit www.psca.org.
Eligibility, Contributions, Enrollment, and Deferral Rates
Six out of ten companies surveyed allow employees to contribute to their plans immediately upon hire. Of the companies offering a matching contribution, 46.2% provide immediate eligibility to receive the match, while 29.4% require one year of service.
Pretax contributions are the most prevalent type of employee contribution. 97.3% of plans permit them. After-tax
contributions (including Roth 401(k) plans) allowed by 62.6% of plans and 53.8% allowed Roth 401(k) contributions. The number of plans offering a Roth feature rose 18% since 2010 and nearly 50% since 2008. Last year, more than 19% of participants eligible to make Roth contributions chose to do so. 98% of plans allowed catch-up contributions. 23.8% of eligible participants took advantage of this feature.
The average employee contribution rate for both pre- and post-tax plans was 6.8%. Among non-highly compensated employees, the pretax deferral rate changed very little over the past two decades. From 1991 to 2012, it rose from 4.2% to 5.2% and peaked at 5.6% in 2007.
Auto-enrollment occurs in 47.2% of plans. This is most common in large plans. Although the most common deferral
rate for auto-enrolled participants is 3%, about a third of plans have default rates higher than that. Nearly three-quarters of plans invest the default contributions into a target-date fund, an increase of almost 40% since 2010. More than half of plans offer auto-escalation of deferral rates (contributions that are automatically increased over time), however, 18% of these plans require participant authorization.
Company contributions help many participants accumulate funds for the future. The survey found the average contributions at 8.8% for profit-sharing plans, 2.7% for 401(k) plans, and 5.4% for combination plans. The most common type of match is a fixed match where the company contributes fifty-cents on the dollar up to 6% of pay.
Immediate vesting is provided in 40.6% of plans for matching contributions and 25.6% for profit-sharing contributions.
On average, retirement plans offer 19 funds to choose from. The typical plan offers 6 domestic stock funds, 2 international stock funds, 2 bond funds, and 1 balanced fund. More than 6 out of 10 plans offer target-date funds. Eighteen percent of plans allow company stock as an investment option. More than half of the firms with 5,000 or more employees offer company stock as an option.
In the typical plan, 23.8% of assets are allocated to actively-managed stock funds, 13.4% to target date funds, 10.2% to indexed domestic stock funds, 9.6% to stable value funds, and 8.0% to actively managed bond funds.
The average allocation to company stock in 2012 was 17.3%. Only 5% of plans had over half of the assets invested in company stock, down from 17% ten years ago. Nearly 41% of plans had less than 10% of their assets invested in company stock, up from 29% ten years ago.
Nine out of ten plans have an investment policy statement, up from 70% in 2003. Most plans monitor their
investments on a quarterly basis. Nearly 7 out of 10 companies use an independent advisor to help with fiduciary responsibility.
Investment Advice and Education
Investment advice is offered by 35% of companies. Within these firms, 17.6% of eligible participants take advantage of the service. The most common type of advice provider is a web-based platform (38.2%), followed by a registered
investment advisor (25.5%), a financial advisor affiliated with the plan provider (25%), and the remaining balance with other credentialed financial professionals.
Small companies are more likely to offer one-on-one counseling, while large companies lean toward a web-based provider. When more than one type of advice is offered, one-on-one is generally the most popular.
Te most common forms of plan education include enrollment kits (69.5%), seminars/workshops (62.5%), e-mail (53%), web-based education (52.2%), and fund performance sheets (45.2%). Thirteen percent of plans use mobile
apps and 3.6% use social media. The most common reasons for providing education include increasing plan participation (78.8%), increasing contribution rates (74.8%), and increasing appreciation for the plan (72.6%). Four
out of ten plans provide education to help reduce their fiduciary liability.
About the Survey
The 56th annual survey reflects the experiences of six hundred eighty-six 401(k), profit-sharing, and "combination" plans with 10.3 million plan participants and $769 billion in plan assets in 2012. Respondent firms represented a wide range of industries, such as construction, financial, health care, manufacturing, real estate, services, and utility/energy.
Bryant Wealth Management, Inc. is a Washington USA small business corporation providing fee-only advisory services for individuals, families and small organizations. This report is not specific to anyone's personal circumstances. We issue general information for educational purposes based upon publicly available sources we believe to be reliable. However, we cannot assure accuracy or completeness as it may change any time and without notice. For more information, contact us by e-mail or call toll-free 1-800-980-3048.
Chris Bryant, Ph.D., MBA, RFC® is the founder, Chairman, and CEO of Bryant Wealth Management, Inc. Dr. Bryant is the author of 7-Steps to Financial Success and the Personal Financial Planning course. He provides advisory services for his private client group while engaging in a limited number of public speaking arrangements each year to help people enjoy life, achieve goals, and leave a legacy.
Chris Bryant is an American financial advisor.