Benchmarking Your Retirement Plan

What are current best practices in plan design? Is your plan competitive to its peers? Will your current plan design enable your employees to have a financially secure retirement?

PSCA’s 66^th Annual Survey, released in December, showed that plan contributions dipped across the board after reaching record levels the year before while at the same time plan sponsors moved forward with implementing best-practice plan designs and offering choice to participants. PSCA’s 67^th annual survey is now open for participation – what trends will it reveal this year?

Did you know?

• The combined employer and employee contribution rate was 12.1 percent in 2022 (down from 15.3 percent in 2021).
• The average employer contribution rate was 4.8 percent of pay, down from 5.6 the year before.
• Ninety percent of plans offer Roth after-tax contributions with 60 percent allowing in-plan Roth conversions. Only 12.4 percent were considering allowing Roth treatment of employer contributions last year.
• Nearly two thirds of plans have an automatic enrollment feature – up a bit from the year before, but availability is highly variable by plan size.
• There was an increase in plans using a safe harbor plan design in 2022 – half of plans did so versus 45 percent the year before. And, more plans used an enhanced matching formula (one that exceeds the traditional safe harbor formula).
• More plan sponsors are using an independent investment advisor to help with fiduciary responsibility – 83 percent of plans, up from 76.8 percent in 2021.
• Availability of target date funds continues to increase while adoption of ESG and retirement income products increased slightly.
• Financial literacy was cited as the primary focus of plan education for the second year in a row, indicated by 83 percent of organizations and up from 77 percent in 2021.

How does your plan compare?
Which of these stats fits your plan? These are overall averages and often there is variability among plan size and industry – and PSCA’s annual survey allows you compare apples to apples by providing specific breakdowns of these data point. Though automatic enrollment is used by two thirds of plans, it is still mostly a large plan feature with fewer than 30 percent of small plans using it. Though availability of retirement income products remains low, large plans are adding it at a faster rate than small plans – this is also true of managed accounts which saw an increase in availability by large plans only (64.1 percent versus 56.7 in 2021).

Trends to Watch

• I don’t expect big shifts in company contribution and participation rates in this year’s survey – they won’t bounce back to 2021 levels but also won’t drop significantly – they will likely remain about where they were in 2022, though we may see more variability in this across industries and organization size.
• Only about 10 percent of plans are currently using annual reenrollment but use of this feature has increased gradually over the last 10 years and is likely to become more popular within the next few years.
• Roth treatment of employer contributions is something that I do think we will see increase overtime as the logistics of implementation are worked out. It will never be a good fit for all plans, but for some it will, and we will see availability of this take hold over the next few years.
• The ways in which plans allow participants access to their retirement savings will shift as companies carefully consider emergency savings accounts and the optional distributions provisions under SECURE 2.0. There isn’t going to be a one-size-fits all approach to this but the options will become more customized and we may see shifts in loan availability and hardship withdrawals provisions as plans adopt some of the other features.
• I don’t think we’re going to see a big shift in investments – we may continue to see small increases in adoption of ESG, lifetime income options, and managed accounts, but target date solutions will continue to be popular. We may see continued increase in adding a brokerage window for plans that want to offer some customization without adding a separate fund to the lineup.   

What are your predications? What changes are you seeing with your plan and is it competitive to similar size and type plans? Participate in PSCA’s 67^th Annual Survey and receive a free copy of the results later this year. The deadline is May 31^st – email [email protected] with any questions.

Also – I will be covering trends from our annual survey as well as our 403(b) survey, NQDC survey, and HSA survey at PSCA’s National Conference in a few weeks. Hope to see you there!