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UP UP and Away for 403(b)s in 2022, PSCA Finds
Nearly all of the key plan metrics we track in 403(b) plans rose in 2022. Participation rates are up. Employer contributions are up. Immediate eligibility, Roth availability, and automatic enrollment use are up (significantly). Two items remained low – loans and hardships. All of these indicators point to 403(b) plans being in really good shape at the end of 2022. Will that help buffer accounts in 2023 from the economic impact of inflation and general turbulence in financial security? Time (and PSCA’s 2024 survey) will tell.
Contributions
While participation rates in 401(k) plans dropped last year (according to PSCA’s 66th Annual Survey), participation rates increased in 403(b) plans in the same time frame to a record high, according to PSCA’s newly released 2023 403(b) Survey. The survey is sponsored by HUB International and Principal Financial Group®.
Eighty percent of eligible employees contributed to their 403(b) plans in 2022, continuing an annual trend of a slight increase year-over year. Participation rates have grown by 20 percent over the last ten years.
Additionally, nonprofits contributed an average of 30% more to employee accounts – an average of $6,322 per participant. Contribution formulas are becoming more generous with average maximum contributions increasing from 5.8 percent of pay to 6.4 of pay in 2022.
Withdrawals
While contributions continue to increase, the percentage of employees tapping their accounts for loans and hardships during 2022 remained low. The use of plan loans last year ticked up to 10.3 percent of participants having a loan outstanding and 0.8 percent of total plan assets loaned. Though the percentage of participants with a loan did increase slightly, it is still the second lowest rate in a decade. Only 0.6 percent of participants took a hardship withdrawal in 2022, down from 1.5 percent in 2021.
Automatic Enrollment
Automatically enrolling employees into a retirement plan has been commonplace in 401(k) plans for a while now and may finally be taking hold in 403(b) plans after years of very slow growth. Nearly one-third of nonprofits automatically enroll new hires into the plan, up from a quarter the year before.
Not only are organizations increasingly using automatic enrollment, but they are also using it with higher default rates and automatically increasing those default rates over time.
- Availability: The use of automatic enrollment jumped by nearly 20% in 2022 and is now used by 31.4% of plans, up from 26.5% the year before.
- Defaults: More than one third of plans with automatic enrollment use a default deferral rate greater than three percent (36.1%), up from 26.9% in 2021.
- Escalation: Two-thirds of plans now automatically escalate the default deferral percentage over time, up from 57% in 2021.
Other Plan Design and Administration Features
PSCA’s survey also revealed increases in immediate eligibility to receive contributions, an increase in Roth availability, and an increase in the use of Investment Policy Statements (IPS).
- Eligibility: Nearly half of plans allow participants to receive matching contributions immediately upon hire (47.8%), up from 36.3% in 2021.
- Roth: Roth availability continues to climb with two-thirds now making it available as an option, up from 58.8% in 2021.
- Investment Policy Statements: There has been a slow, steady increase in plans adopting an IPS with 63.3% of organizations now having one in place (up by 25% in a decade).
The survey is available for purchase at: https://www.psca.org/research/403b/2023AR.