50th Annual Survey in Review

Data confirms employers taking a more active role

PSCA has released its 50th Annual Survey of Profit Sharing and 401(k) Plans, which reports on the 2006 plan year experience of 1,000 profit-sharing and 401(k) plans. These plans, which are diverse in size and geographic location, have more than $600 billion in assets and more than six million participants. The 2006 average account balance was $100,000. 

The results of this year’s survey confirm a number of defined contribution plan trends. The first is that there has been a transition from plans funded solely by the employer to plans with the option for employees to contribute as well. According to the Department of Labor (DOL), 62.5 percent of defined contribution plans permitted employee contributions in 1994. 69.8 percent of PSCA’s survey respondents for 2004 reported that they permitted employee contributions. Employee contributions were permitted in 85.1 percent of all defined contribution plans in 2004, according to the DOL. 96.1 percent of PSCA’s survey respondents reported that their plans permitted employee contributions in 2006. 

The second trend is that large companies are implementing automatic enrollment. In 1999, 17.3 percent of PSCA’s survey respondents with 5,000 or more participants reported that they had implemented automatic enrollment. 41.3 percent of large companies reported that automatic enrollment was a feature of their plans in 2006. This is having an impact on plan participation. 401(k) plan participation, excluding combination profit sharing/401(k) plans, at large companies participating in PSCA’s surveys was 77.3 percent in 2006 — up from 70.7 percent in 1999. 

Following is a review of some of the survey highlights.

Eligibility
An average of 86.2 percent of employees at respondent companies are eligible to participate in their company’s plan. Nearly half of plans (49.3 percent) restrict eligibility to specific groups of employees. In such plans, eligibility is almost always (96.7 percent) provided to salaried workers. Eligibility is provided to hourly employees in 89.0 percent of plans, to part-time workers in 67.7 percent of plans, and to commissioned staff in 39.9 percent of plans. In 41.7 percent of the companies with union workers, the union workers do not participate in the plan.

Participation
The average participation rate is 84.7 percent, including an average of 78.9 percent for 401(k) plans and 89.4 percent for combination profit sharing/ 401(k) plans. Participation tends to be highest in the smallest plans. See Exhibit 1.

Exhibit 1: Rate of employee participation by plan size and plan type

Plan Type
Plan Size by Number of Participants	401(k)	Combination	All Plans
1–49	85.0%	94.3%	91.6%
50–199	85.0%	92.6%	89.4%
200–999	78.8%	86.8%	83.2%
1,000–4,999	72.6%	86.5%	79.6%
5,000+	77.3%	81.5%	78.8%
All Plans	78.9%	89.4%	84.7%

Participant Deferrals
Participant deferrals are permitted in 96.1 percent of plans surveyed. (The others are profit sharing plans.) 

Pre-tax deferral rates average 5.4 percent of pay among non-highly compensated employees and 6.9 percent of pay among highly-compensated employees. In plans where Roth 401(k) contributions are permitted, the average Roth contribution rate was 3.5 percent of pay among non-highly compensated employees and 4.2 percent of pay among highly-compensated employees. See Exhibit 2.

Exhibit 2: Average percentage of salary deferral

Plan Size by Number of Participants
Contribution Type	1–49	50–199	200–999	1,000–4,999	5,000+	All Plans
Pre-Tax [401(k)]
Higher-Paid	7.3%	7.1%	6.7%	6.7%	6.6%	6.9%
Lower-Paid	6.1%	5.9%	5.1%	5.1%	5.0%	5.4%
After-Tax [Roth]
Higher-Paid	5.5%	5.3%	3.9%	2.4%	3.2%	4.2%
Lower-Paid	4.4%	3.6%	3.5%	1.9%	3.8%	3.5%

Roth 401(k)
Among plans that permit participant contributions, 18.4 percent allow participants to make Roth after-tax contributions. Roth is more widely available in combination profit sharing/401(k) plans (23.5 percent) than in 401(k) only plans (12.2 percent). 11.6 percent of participants made Roth contributions when offered the opportunity.

Catch-up Contributions
Catch-up contributions are permitted in 98.0 percent of plans. Of participants eligible to make catch-up contributions, 25.6 percent did so, up from 23.3 percent in 2005. Matches on catch-up contributions are provided in 31.0 percent of plans.

Company Contributions
Profit sharing plans tend to be the most generous, with company contributions averaging 9.2 percent of pay. Company contributions are lowest in 401(k) plans, averaging 3.0 percent of pay. 

Numerous formulas are used to determine company contributions. In plans permitting participant contributions, the most common formula is a fixed match only, present in 29.5 percent of plans (including plans with safe harbor matches). The most common type of company contribution for profit sharing plans is a discretionary profit sharing contribution only, which is present in 69.2 percent of plans. 

For plans with fixed matches, the most common matches are $.50 per $1.00 up to the first 6 percent of pay (32.2 percent of plans), $1.00 per $1.00 up to the first 4 percent of pay (9.8 percent of plans) and $1.00 per $1.00 up to the first 3 percent of pay (8.5 percent of plans).

Investment Options
Plans offer an average of 18 funds for participant contributions, down from 19 funds in 2005. See Exhibit 3.

Exhibit 3: Average number of investment funds available for participant contributions by plan size

Plan Size by Number of Participants
Industry	1–49	50–199	200–999	1,000–4,999	5,000+	All Plans
Number of Funds Available for Participant Contributions	22	19	15	17	16	18

This is the first time the number of funds offered has dropped since the question was asked in 1978. 

The funds most commonly offered for participant contributions are actively-managed domestic equity funds (78.8 percent of plans), actively-managed international equity funds (74.8 percent of plans), indexed domestic equity funds (71.8 percent of plans), and balanced stock/bond funds (64.8 percent of plans). See Exhibit 4.

Exhibit 4: Investment funds available for participant contributions by plan size

Plan Size by Number of Participants
Fund Type	1–49	50–199	200–999	1,000–4,999	5,000+	All Plans
Balanced Stock/Bond Fund	52.0%	62.8%	66.1%	75.3%	65.0%	64.8%
Bond-Actively Managed, Domestic	50.0%	62.0%	58.8%	69.8%	60.2%	60.5%
Bond-Indexed, Domestic	25.3%	30.2%	26.1%	28.0%	43.9%	30.0%
Cash Equivalents (CD/Money Market)	53.3%	48.8%	41.8%	39.6%	48.8%	45.9%
Company Stock	4.7%	0.8%	10.3%	28.6%	56.9%	19.6%
Equity-Actively Managed, Domestic	70.7%	78.3%	76.4%	87.4%	79.7%	78.8%
Equity-Actively Managed, Int’l	62.0%	76.7%	74.5%	85.2%	79.7%	75.8%
Equity-Indexed, Domestic	53.3%	69.8%	72.1%	78.0%	87.0%	71.8%
Equity-Indexed, Int’l	18.7%	14.0%	19.4%	14.3%	35.8%	19.8%
Real Estate Fund	29.3%	25.6%	15.8%	14.8%	10.6%	19.1%
Other Sector Fund	12.7%	11.6%	10.9%	7.7%	4.1%	9.5%
Self-Directed (Brokerage Window)	12.0%	9.3%	12.1%	14.8%	20.3%	13.6%
Self-Directed (Mutual Fund Window)	8.0%	5.4%	4.8%	3.8%	6.5%	5.6%
Stable Value Fund	34.0%	55.8%	58.8%	69.2%	68.3%	57.4%
Target Retirement Date	22.0%	24.8%	37.0%	41.8%	39.0%	33.4%
Other Lifestyle Fund(s)	20.7%	24.8%	25.5%	22.0%	26.0%	23.6%
Other	18.0%	11.6%	10.3%	9.3%	11.4%	12.0%

Professionally Managed Accounts
A professionally managed alternative is offered by 29.8 percent of plans. Related expenses are charged to employees in 69.4 percent of plans, and paid by the company in 30.6 percent of plans. When employees are responsible for paying, payment usually is made only by those who use the service (89.5 percent).

Self-Directed Accounts
Self directed brokerage windows are offered in 13.6 percent of plans, while mutual fund windows are offered in 5.6 percent of plans. 1.9 percent of plan assets are invested through brokerage windows, and 1.6 percent of plan assets are invested through mutual fund windows.

Asset Allocation — Typical Allocation
The typical plan has approximately 70 percent of assets invested in equities. Assets are most frequently invested in actively managed domestic equity funds (30.6 percent of assets), indexed domestic equity funds (10.3 percent), balanced stock/bond funds (8.2 percent) and stable value funds (8.9 percent). See Exhibit 5.

Exhibit 5: Average allocation of assets in plans

Plan Size by Number of Participants
Fund Type	1–49	50–199	200–999	1,000–4,999	5,000+	1–4,999	All Sizes
Balanced Stock/Bond Fund	8.1	8.4	7.7	9.4	7.2	8.4	8.2
Bond-Actively Managed, Domestic	2.9	4.4	4.3	3.9	3.2	3.9	3.8
Bond-Indexed, Domestic	2.2	1.2	1.7	1.0	1.9	1.5	1.6
Cash Equivalents (CD/Money Market)	4.0	4.2	4.1	3.8	3.9	4.0	4.0
Company Stock	0.7	1.1	2.6	7.7	14.8	3.4	5.3
Equity-Actively Managed, Domestic	32.2	34.8	31.6	31.3	22.8	32.3	30.6
Equity-Actively Managed, Int’l	9.5	9.9	7.8	9.1	7.1	9.0	8.7
Equity-Indexed, Domestic	8.5	9.0	10.8	10.7	12.4	9.9	10.3
Equity-Indexed, Int’l	2.6	1.6	1.2	1.0	1.9	1.5	1.6
Real Estate Fund	1.6	0.7	0.8	0.5	0.3	0.9	0.8
Other Sector Fund	0.9	0.7	1.2	0.5	0.4	0.8	0.8
Self-Directed (Brokerage Window)	6.6	1.2	0.7	0.6	0.5	2.1	1.9
Self-Directed (Mutual Fund Window)	3.4	1.9	1.8	0.7	0.3	1.9	1.6
Stable Value Fund	3.0	7.5	9.5	11.1	12.9	8.0	8.9
Target Retirement Date	2.8	3.3	5.4	4.5	4.4	4.1	4.1
Other Lifestyle Fund(s)	5.2	6.5	5.6	2.7	3.4	4.9	4.6
Other	5.8	3.5	3.2	1.7	2.6	3.4	3.3
	100.0	99.9	100.0	100.2	100.0	100.0	100.1

Automatic Enrollment
Automatic enrollment is present in 23.6 percent of plans, up from 16.9 percent in 2005. Automatic enrollment is most common in large plans; 41.3 percent of plans with 5,000 or more participants report having automatic enrollment, while only 6.8 percent of plans with fewer than 50 participants have automatic enrollment. 

Among plans with automatic enrollment, the most common default deferral is 3 percent of pay, present in 58.5 percent of plans. The most common default investment vehicles for automatic deferrals are target retirement date funds (30.6 percent) and lifestyle funds (22.8 percent).

Loans
Loans are permitted in 87.5 percent of 401(k), 84.9 percent of combination, and 28.9 percent of profit sharing plans. Among plans that permit loans, an average of 23.7 percent of participants have loans outstanding, with an average loan amount of $8,595 per borrower. Loans account for 2.2 percent of total plan assets among plans with loans.

Investment Education
Companies’ primary reasons for providing plan education include increasing participation (39.4 percent), increasing appreciation for the plan (17.2 percent), and improving asset allocation (14.2 percent). Tools most frequently used to deliver education include enrollment kits (62.8 percent), seminars/workshops (51.6 percent), the Web (45.6 percent), newsletters (44.1 percent), and fund performance sheets (43.7 percent).

Internet Usage
92.3 percent of plans permit participant access via the Internet. Services most frequently offered online include balance inquiries (91.2 percent), investment changes (90.5 percent), plan inquiries (80.9 percent), and contribution changes (64.0 percent).

Vesting Update
Immediate vesting is present for matching contributions in 39.5 percent of plans, and for non-matching contributions in 20.0 percent of plans. Among plans that do not have immediate vesting, graduated vesting tends to be the most common arrangement for all plan types.

Survey Availability
PSCA’s 50th Annual Survey of Profit Sharing and 401(k) Plans is available for $125 for PSCA members and $325 for non-members. 

Visit www.psca.org/research.html to order online, or call 312-419-1863.