403(b) Plans Remarkably Healthy After Recession, New Regs

New 2010 Survey from Profit Sharing/401k Council of America Shows Resilience of 403(b) Sponsors and

Despite a potentially crushing recession and a spate of complex new regulations, the 403(b) retirement plan system appears to be healthier than ever. Findings of the just-released 2010 403(b) Plan Survey from the Profit Sharing/401k Council of America (PSCA) indicate that plan sponsors are adjusting well to the new regulations imposed by the IRS —and that participation and retirement account balances remain high.

Sponsored by the Principal Financial Group®, the study shows that nearly 57 percent of plan sponsors made changes to their 403(b) plans because of new regulations. That is a higher percentage than had planned to make changes (41%), according to the 2008 403(b) Plan Survey.

The survey also revealed that the overall participation rate for employees eligible to participate in a 403(b) plan remained unchanged from the 2008 survey (75.8%).
 “This year’s 403(b) Plan Survey proves the resilience of the 403(b) system,” says David Wray, president of PSCA. “Pre-crash to post-crash, pre-regs to post-regs, 403(b) plan sponsors and participants clearly remain committed to this important employee benefit.”

The 2010 403(b) Plan Survey—part of an ongoing series of PSCA surveys on 403(b) plans—reports on the 2009 plan-year experience of 552 plan sponsors from across the country. This represents a 43% increase in the number of respondents from the 2008 403(b) Plan Survey.

“The objective of the PSCA 403(b) Plan Survey is to provide much-needed benchmarking data for 403(b) plan sponsors as they develop and maintain their plans. This year’s significant increase in respondents shows that the survey is becoming a trusted, credible benchmarking source for the 403(b) market,” says Aaron Friedman, national practice leader—non-profit, The Principal®.

Survey Highlights

Automatic Enrollment
11.5 percent of plans have an automatic enrollment feature. Automatic enrollment is more prevalent for large plans (21.9 percent of plans with 1,000 or more participants). 43.5 percent of plans with automatic enrollment have a default deferral of 3 percent of pay and 19.6 percent have a default deferral of 2 percent of pay.  The most common default option is a target-date fund (38.8 percent of plans). This is a shift from the most common default option in 2007, which was a money market fund (30.2 percent of plans).

Catch-up Contributions
Catch-up contributions for participants age 50 and over are permitted in 94.5 percent of plans. 16.1 percent of eligible participants made catch-up contributions. Of organizations that permit catch-up contributions, 16.4 percent match them.

Eligible Employees
84.2 percent of employees at respondent organizations are eligible to participate in their organization’s plan, up slightly from 83.5 percent in 2007. Large organizations (more than 1,000 participants) have the highest percent of eligible employees (88.8 percent).

ERISA Status of Respondents
75.0 percent of plans are ERISA, while 7.1 percent of respondents were unsure of their plan’s ERISA status. 77.5 percent of plans state that they file a form 5000, and 3.7 percent are unsure if they file one.

Hardship Withdrawals
75.9 percent of plans allow participants to take hardship withdrawals. 88.0 percent of those plans allow hardship withdrawals to pay for medical expenses, 72.0 percent permit them to pay for post-secondary education, and 50.7 allow them for purchase of a primary residence or to prevent eviction or foreclosure.

Impact of 403(b) Regulations
56.8 percent of organizations made changes to their plan as a result of the new 403(b) plan regulations. This is about 16 percent more organizations that anticipated making changes in 2007 (41.0 percent).

Investment Advice
43.5 percent of organizations offer investment advice to participants. The most common type of advice offered is one-on-one counseling in person (79.0 percent of organizations).

Investment Options
Plans offer an average of 20 funds for organization contributions and an average of 21 funds for participant contributions. 27.7 percent of plans offer 26 or more funds for participant contributions.

Investment Policy Statements
44.8 percent of respondents have an investment policy statement. 33.0 percent of plans are unsure if their plan has such a statement.

Loans
72.7 percent of plans allow participants to borrow against their plan assets. 48.7 percent allow loans for any reason while 24.0 percent allow loans only in hardship situations. 36.8 percent of plans allow participants to have more than one loan outstanding.

Organization Contributions
83.2 percent of organizations make contributions to the plan. Contributions are determined by a wide variety of formulas. The most common formula is a guaranteed percentage of participant’s pay only (17.0 percent of plans), followed by a stated employer match only (13.9 percent of plans), and a fixed match only (8.9 percent of plans).

Participant Contributions
97.3 percent of plans permit participant contributions. Pre-tax contributions are permitted in 97.1 percent of plans while Roth and 401(m) after-tax contributions are permitted in 15.6 percent of plans.

Participation Rates
The average participation rate (percentage of eligible employees with a balance in the plan) is 75.8 percent (the same as in 2007). The average account balance for active plan participants is $71,879. 

Preparation of the 5500
For 35.5 percent of organizations that file a form 5500, the form is prepared by the plan’s recordkeeper and 33.9 percent of organizations prepare the 5500 themselves.

Roth Feature
13.9 percent of plans permit Roth after-tax contributions, up from 10.9 in 2007. The percentage of large plans offering Roth increased significantly, from 17.0 percent in 2007 to 29.4 percent in 2009 for plans with 1,000 or more participants, and from 5.6 percent in 2007 to 19.0 percent in 2009 for plans with 200-999 participants.

Vesting
76.2 percent of plans provide immediate vesting for non-matching contributions and 65.3 percent of plans provide immediate vesting for matching contributions. Among plans that do not provide immediate vesting, graduated vesting is the most common arrangement for matching contributions and cliff vesting is the most common arrangement for non-matching contributions.

Click here to order a copy of the full report or visit our Web site at www.psca.org.

The Profit Sharing/401k Council of America (PSCA), a national non-profit association of 1,200 companies and their 6 million employees, advocates increased retirement security through profit sharing, 401(k) and related defined contribution programs to federal policymakers and makes practical assistance with profit sharing and 401(k) plan design, administration, investment, compliance and communication available to its members. PSCA, established in 1947, is based on the principle that “defined contribution partnership in the workplace fits today’s reality.” PSCA's services are tailored to meet the needs of both large and small companies with members ranging in size from Fortune 100 firms to small, entrepreneurial businesses.