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Retirement Plans Looking More 'SECURE,' 401(k) Benchmarks Show

Employers increased default deferral limits based on SECURE Act provisions

A stack of wooden blocks with the word 401k written on them.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in late 2019, aimed to increase savings through 401(k) and similar employer-sponsored retirement plans. Plan data indicates that the law is achieving this purpose, according to the Plan Sponsor Council of America's (PSCA's) 64th Annual Survey of Profit Sharing and 401(k) Plans report, released in December and based on responses from 518 plans surveyed in 2021 about the prior plan year.

Aided by SECURE Act provisions allowing long-term part-time employees to participate in employer-sponsored plans, nearly three-fourths of plans now allow salaried part-time employees to participate and nearly 70 percent allow hourly part-time employees to do so, the survey showed.

"We know, and see in the data, that when people have access to retirement savings plans at work, they use them," said Hattie Greenan, director of research and communications for the PSCA. "Expanding access to plans, as the SECURE Act did, is clearly creating more retirement savers."

Higher Default Savings Rates

With increased eligibility comes increased plan participation, and nearly 90 percent of eligible participants made contributions to the plan in 2020—a record for the survey, now in its 64th year.

In addition, plan designs are steadily moving beyond the automatic enrollment framework of the Pension Protection Act of 2006:

  • Automatic increase features. More than a third (36.5 percent) of plans now automatically escalate participants' salary deferral contribution rate each year unless the participant opts out and cap auto-escalation increases at more than 10 percent of pay (a SECURE Act provision increased the auto-escalation limit from 10 percent to 15 percent).
  • Default savings rates. The most common default deferral rate is now 6 percent of pay, with 65 percent of plans now using a default rate of more than 3 percent, which could significantly boost overall savings rates over time.

"Plan design changes can be slow to take hold, but the pandemic appears to have accelerated the pace of change in dramatic fashion," said Nevin Adams, chief content officer and head of retirement research at the American Retirement Association. "It's encouraging to see a strong participant response to these enhanced plan designs—the combination is great news for the nation's retirement security."

Pandemic Punch

"The pandemic has created an environment that is shifting the way retirement plans are considered, designed and provided that may ultimately reshape plans in the long run," Greenan said.

Working from home has realigned retirement education priorities, as well as how that education is provided, survey responses showed.

For the first time, the primary reason for providing plan education was to increase employees' overall financial literacy (77 percent of plans), supplanting the traditional focuses of increasing appreciation for the plan and increasing participation.

Remote work also challenged traditional administration and education methods, forcing a reliance on technology. The use of e-mail, mobile apps and webinars to provide plan education jumped significantly, and two-thirds of organizations are now using mobile technology to provide plan access and transactions.

"Unfortunately, there were some negative indicators as well," the PSCA reported, and "the impact of the pandemic can also be seen in the lower average company contributions, as well as a slight uptick in loans and withdrawals."

While the average company contribution slipped to 4.9 percent of pay, it was still higher than it was four years ago, the survey showed. And, although more than 90 percent of plans now allow hardship withdrawals, likely spurred by provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law in March 2020, only a small fraction—2.6 percent of participants—took a hardship withdrawal last year.

Other Key Findings

Several other plan design features have made gains, as well:

  • Roth accounts. Roth after-tax contributions are now permitted in 86.3 percent of plans, including 91.3 percent of large plans.
  • Automatic enrollment. 62 percent of plans now use an automatic enrollment feature. For the first time, the most common default deferral rate into a qualified default investment alternative is 6 percent of pay (32.9 percent of plans), rather than the 3 percent of pay that has been the norm since 2006 (29 percent of plans).
  • Investment options. The number of investment options offered to participants rose for the first time in more than 10 years. On average, 21 funds are now included in plan lineups.
  • Investment advice. Among plan participants, 40 percent took advantage of advice when it was offered, up from a quarter of participants for the last few years.
  • Technology. The use of webinars to provide plan education increased from a third of organizations in 2019 to more than half (53.7 percent) last year. The use of mobile apps has increased by 80 percent in the last five years, with 64.9 percent now using them.

Savings Rates Top 9% of Pay in 2021

Contributions to workplace retirement accounts hit record levels this year, according to Fidelity Investments' third-quarter 2021 look at the defined contribution plans it administers.

The average 401(k) contribution rate reached a record 9.4 percent of pay, marking the fifth consecutive quarter in which the overall 401(k) contribution rate has increased, the firm reported.

Many Generation Z workers are automatically enrolled in their plan and defaulted into target-date funds. As a result, 86 percent of Generation Z workers hold all of their 401(k) savings in these funds, which are a mix of stocks, bonds and other investments that automatically become more conservative as the fund approaches its target retirement date and beyond.

Despite stock market uncertainty and the continuing economic impact of the pandemic, the percentage of outstanding 401(k) loans continues to trend downward, Fidelity reported. The percentage of workers with an outstanding loan from their 401(k) reached a record low 17.3 percent, more than a percentage point lower than a year earlier (18.7 percent).

Related SHRM Article:

401(k) Plan Match Formulas and Automatic Features Add Value for Participants, SHRM Online, July 2021


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