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10/02/2019

Participation, contributions climb in 403(b) plans

Survey also finds growing interest in financial wellness programs.

Organizations that sponsor 403(b) plans reported growth in plan participation and contribution rates, according to the eleventh annual 403(b) plan survey from the Plan Sponsor Council of America (PSCA). The survey, which is sponsored by Principal Financial Group®, reported increased contributions by both participants and organizations continued to have a positive impact on retirement readiness. Supporting those developments, the survey found a strong interest in financial wellness programs.

“These 403(b) programs are offered by an exceptionally diverse group of employers, both in size and workforce composition, and this year’s survey reflects both the diversity in designs alongside a number of consistent encouraging trends to help workers prepare for a successful retirement,” notes Hattie Greenan, director of research and communications at PSCA.

PSCA’s 2019 403(b) Plan Survey, based on responses from nearly 600 non-profit organizations across the U.S., is the only independent 403(b) research report that delivers actionable data on trends among plan sponsors in the non-profit sector.

Top trends

  • Increased average contributions promoting retirement readiness
    - Plan sponsor contributions up to 5.5%, from 4.7%
    - Participants now contribute 6.6% of pay, up from 6.3%
  • Retirement advisors needed
    - Nearly half (46.6%) don’t currently work with one
  • Financial wellness programs gaining momentum
    - A quarter (26.7%) already have a formal plan in place; nearly half (47%) have plans or interest in implementing one 

Higher, better participation Plan sponsor contribution rates rose in the last year to an average of 5.5% of pay (up from 4.7% a year ago), and more workers benefited sooner from those contributions as the number of organizations offering immediate eligibility also rose. The survey also found an increase in participant contributions, now an average of 6.6% of pay, and responding employers noted a remarkably robust 81% rate of participation. Combined, employer and employee contributions average over 12% of pay. Plan design features like automatic enrollment, currently in place at one-in-five (21.8%) responding organizations, encourage higher participation and contributions. More than a third of those plans (37.7%) use a default deferral rate higher than 3%.

“It’s encouraging to see the increased engagement evidenced by higher contribution and participation rates,” said Luke Vandermillen, vice president of retirement and income solutions at Principal. “Plan sponsors have taken the lead by increasing contributions and adapting plan designs to encourage more participation, which not only improves retirement readiness but also serves as a differentiator in a tight labor market.”

Fiduciary focus
The survey, which has previously noted an increased emphasis on fiduciary responsibility by plan sponsors, found that a growing number rely on the use of an investment policy statement (IPS). More than 60% of plans have one in place, a 40% increase over the past decade.

“An investment policy statement is one of the best ways to demonstrate the related fiduciary responsibility which has become increasingly important in the current heightened regulatory environment,” said Vandermillen. “Working with a financial advisor or consultant who specializes in retirement plans can have a big impact on putting the right documentation in place, overcoming fiduciary concerns and helping ensure the plan and participants achieve goals.”

Yet, nearly half of the organizations surveyed do not currently work with a retirement plan advisor. Another 4 in 10 indicate they aren’t yet evaluating whether their plan is meeting its goals, an area where advisors and consultants can help.

Healthy interest in financial wellness programs
Responding to a new question in this year’s survey, a quarter of organizations already have a financial wellness program in place and nearly half (47%) have plans or interest in implementing one in the future.

“While workers in the non-profit sector have always had a strong commitment to their profession and its mission, it’s exciting to see growing interest by their employers in helping those workers take better care of their financial well-being,” notes Greenan. “It’s an emerging best practice, and one that stands to benefit both workers and their employers.”

About PSCA's 2019 403(b) Survey
PSCA, part of the American Retirement Association, conducted its tenth annual survey of 403(b) plan sponsors in the spring of 2019. The survey received responses from 580 non-profit organizations that currently sponsor a 403(b) plan for employees and range in size and industry from small community-based organizations to large hospital and university systems. For more information, visit 2019 403(b) Survey Report.