49th Annual Survey in Review

A look at current profit sharing/401(k) trends and practices

PSCA has released its 49th Annual Survey of Profit Sharing and 401(k) Plans, which reports on the 2005 plan year experience of 1,106 profit-sharing and 401(k) plans. These plans, which are diverse in size and geographic location, have a combined value of more than $500 billion in assets and more than six million participants. 

Following is a review of some of the survey highlights. 

Eligibility
An average of 85.4 percent of employees at respondent companies are eligible to participate in their company’s plan. Nearly half of plans (48.0 percent) restrict eligibility to specific groups of employees. In such plans, eligibility is almost always (96.0 percent) provided to salaried workers. Eligibility is provided to hourly employees in 88.0 percent of plans, to part-time workers in 68.4 percent of plans, and to commissioned staff in 39.0 percent of plans. 

Participation
The average participation rate is 84.0 percent, including an average of 77.7 percent for 401(k) plans and 90.1 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	84.6%	95.6%	91.1%
50–199	81.1%	93.2%	87.4%
200–999	76.6%	86.0%	81.4%
1,000–4,999	73.0%	87.3%	79.9%
5,000+	74.5%	85.1%	78.4%
All Plans	77.7%	90.1%	84.0%

Participant deferrals
Participant deferrals are permitted in 95.4 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. See Exhibit 2. 

Exhibit 2: Average percentage of salary deferral for ADP-ACP test results

Contribution Type
	Pre-Tax [401(k)]		After-Tax [401(m)]
Plan Size by Number of Participants	Higher-Paid	Lower-Paid	Higher-Paid	Lower-Paid
1–49	7.3%	6.1%	4.8%	4.5%
50–199	7.1%	5.9%	3.7%	2.6%
200–999	6.8%	5.2%	3.0%	2.6%
1,000–4,999	6.5%	5.0%	2.9%	2.4%
5,000+	6.6%	4.9%	2.5%	1.9%
All Plans	6.9%	5.4%	3.0%	2.4%

Catch-Up Contributions
Catch-up contributions are permitted in 98.0 percent of plans. Of participants eligible to make catch-up contributions, 23.3 percent did so. Matches on catch-up contributions are provided in 27.9 percent of plans. 

Company Contributions
Profit sharing plans tend to be the most generous, with company contributions averaging 9.4 percent of pay. Company contributions are lowest in 401(k) plans, averaging 2.8 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 31.9 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 74.5 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 (33.6 percent of plans), $1.00 per $1.00 up to the first 4 percent of pay (8.6 percent of plans) and $.50 per $1.00 up to the first 4 percent of pay (8.4 percent of plans). 

Investment Options
The number of funds offered to plan participants continues to increase. Plans offer an average of 19 funds for participant contributions, up from 18 funds in 2004 and 17 funds in 2003. 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	20	17	18	17	19

The funds most commonly offered for participant contributions are actively managed domestic equity funds (80.0 percent of plans), actively managed international equity funds (74.8 percent of plans), indexed domestic equity funds (71.3 percent of plans), and balanced stock/bond funds (67.5 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	62.5%	66.5%	67.5%	73.8%	65.6%	67.5%
Bond-Actively Managed, Domestic	63.1%	62.7%	64.1%	69.6%	59.2%	64.2%
Bond-Indexed, Domestic	25.6%	25.9%	30.6%	27.2%	36.8%	28.9%
Cash Equivalents (CD/Money Market)	56.0%	57.6%	44.2%	47.6%	48.0%	50.4%
Company Stock	3.0%	4.4%	14.6%	36.1%	56.0%	21.3%
Equity-Actively Managed, Domestic	78.0%	75.9%	82.0%	82.7%	80.0%	80.0%
Equity-Actively Managed, Int’l	74.4%	69.0%	77.2%	77.0%	75.2%	74.8%
Equity-Indexed, Domestic	60.7%	65.8%	71.8%	79.1%	80.0%	71.3%
Equity-Indexed, Int’l	20.8%	24.1%	18.4%	23.6%	28.8%	22.6%
Real Estate Fund	31.0%	21.5%	18.0%	13.6%	8.0%	18.8%
Other Sector Fund	11.9%	17.1%	13.6%	12.0%	3.2%	12.0%
Self-Directed (Brokerage Window)	16.1%	10.8%	13.6%	14.1%	17.6%	14.3%
Self-Directed (Mutual Fund Window)	10.1%	12.0%	8.3%	4.2%	7.2%	8.3%
Stable Value Fund	42.3%	47.5%	63.1%	67.0%	76.0%	58.8%
Target Retirement Date	13.7%	22.2%	27.2%	34.0%	25.6%	24.9%
Other Lifestyle Fund(s)	26.8%	26.6%	27.7%	25.7%	24.0%	26.3%
Other	13.7%	13.9%	9.7%	11.5%	15.2%	12.5%

Professionally Managed Accounts
A professionally managed alternative is offered by 24.4 percent of plans. Related expenses are charged to employees in 58.9 percent of plans, and paid by the company in 41.1 percent of plans. When employees are responsible for paying, payment usually is made only by those who use the service (88.5 percent). 

Self-Directed Accounts
Self directed brokerage windows are offered in 14.3 percent of plans, while open mutual fund windows are offered in 8.3 percent of plans. Data shows 0.6 percent of plan assets are invested through brokerage windows, and 1.3 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 (32.0 percent of assets), indexed domestic equity funds (9.7 percent), balanced stock/bond funds (9.2 percent) and stable value funds (8.9 percent). See Exhibit 5. 

Exhibit 5: Average plan asset allocation by plan size

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	6.6%	14.7%	9.5%	8.2%	6.8%	9.6%	9.2%
Bond-Actively Managed, Domestic	3.8%	5.3%	4.7%	4.2%	3.6%	4.5%	4.4%
Bond-Indexed, Domestic	1.2%	1.1%	1.6%	1.3%	1.6%	1.4%	1.4%
Cash Equivalents (CD/Money Market)	4.2%	5.1%	4.0%	3.7%	4.0%	4.2%	4.2%
Company Stock	0.9%	1.8%	4.0%	9.8%	16.0%	4.5%	6.2%
Equity-Actively Managed, Domestic	38.3%	31.3%	33.9%	31.0%	23.4%	33.5%	32.0%
Equity-Actively Managed, Int’l	10.2%	8.6%	6.6%	6.8%	5.8%	7.9%	7.6%
Equity-Indexed, Domestic	8.2%	8.0%	9.7%	11.3%	11.2%	9.5%	9.7%
Equity-Indexed, Int’l	1.4%	1.5%	1.0%	1.1%	1.5%	1.2%	1.3%
Real Estate Fund	1.0%	0.7%	0.6%	0.2%	0.2%	0.6%	0.5%
Other Sector Fund	0.5%	0.4%	1.0%	0.8%	0.3%	0.7%	0.7%
Self-Directed (Brokerage Window)	6.5%	1.5%	1.9%	0.8%	0.5%	2.5%	2.2%
Self-Directed (Mutual Fund Window)	3.6%	2.3%	1.7%	1.0%	1.4%	2.0%	1.9%
Stable Value Fund	3.5%	5.8%	9.4%	11.5%	14.5%	7.9%	8.9%
Target Retirement Date	1.0%	3.1%	3.3%	2.8%	2.6%	2.6%	2.6%
Other Lifestyle Fund(s)	5.4%	4.8%	3.9%	3.1%	3.4%	4.2%	4.1%
Other	3.7%	3.9%	3.1%	2.5%	3.1%	3.2%	3.2%
	100.0%	99.9%	99.9%	100.1%	99.9%	100.0%	100.1%

Automatic Enrollment
Automatic enrollment is present in 16.9 percent of plans, up from 10.5 percent in 2004. Automatic enrollment is most common in large plans; 34.3 percent of plans with 5,000 or more participants report having automatic enrollment, while only 3.5 percent of plans with fewer than 50 participants have automatic enrollment. 

Among plans with automatic enrollment, the most common default deferral percentages is 3 percent of pay, present in 60.3 percent of plans. The most common default investment vehicles for automatic deferrals are lifestyle funds (37.0 percent) and stable value funds (30.3 percent). 

Loans
Loans are permitted in 85.2 percent of 401(k), 87.3 percent of combination, and 31.4 percent of profit sharing plans. Among plans that permit loans, an average of 24.5 percent of participants have loans outstanding, with an average loan amount of $7,407 per borrower. Loans account for 2.4 percent of total plan assets among plans with loans. 

Investment Education
Companies’ primary reasons for providing plan education include increasing participation (36.3 percent), increasing appreciation for the plan (19.8 percent), and improving asset allocation (13.7 percent). Tools most frequently used to deliver education include enrollment kits (62.2 percent), seminars/workshops (48.1 percent), fund performance sheets (46.3 percent), newsletters (42.2 percent), and the Web (42.1 percent). 

Internet Usage
92.2 percent of plans permit participant access via the Internet. Services most frequently offered online include balance inquiries (91.3 percent), investment changes (89.4 percent), plan inquiries (77.8 percent), and contribution changes (61.1 percent). 

Vesting
Immediate vesting is present for matching contributions in 39.3 percent of plans and for non-matching contributions in 21.2 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 49th 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.