401(k) Sponsors Increase Focus On Plan Investments

PSCA has released its 53rd Annual Survey of Profit Sharing and 401(k) Plans which reports 2009 data. This latest survey shows that as markets fluctuated and the 401(k) system came under pressure, plan sponsors responded proactively with an increased concentration on plan investments. Plan investments were more frequently monitored with 64.4 percent of plan sponsors reviewing investments quarterly. The majority of plans (85.8 percent) now have an investment policy statement – up from 54.3 percent ten years ago. Twenty percent of plans made changes to their investment lineup.

In addition to more closely monitoring investments, plan sponsors are working to help participants make good investment choices. 31.4 percent of plans offer a professionally managed alternative - up from 26.2 percent in 2008. 60.1 percent of plans offer investment advice to participants (a 20 percent increase from 2008), with 21.6 percent of participants using it when offered. 62.3 percent of plans now offer a target-date fund in the plan – a 40 percent increase over the last two years.

Plan sponsors stepped up to the plate to help participants through this difficult economic time and to ensure that their plan meets the needs their employees. This is one of the unique attributes of the 401(k) system – participants have an informed advocate working on their behalf in their employer.

Below are some additional highlights from the survey:

Asset Allocation
The average plan has approximately 60 percent of assets invested in equities. Assets are most frequently invested in actively managed domestic equity funds (28.9 percent of assets), target retirement date funds (10.3 percent), and stable value funds (9.7 percent).

Automatic Enrollment
38.4 percent of plans have an automatic enrollment feature. Automatic enrollment is most common in large plans – 53.7 percent of plans with 5,000 or more participants report having automatic enrollment. The most common default deferral is 3 percent of pay, present in 58.0 percent of plans. 53.1 percent of plans automatically increase the default deferral percentage over time. The most common default investment option is a target retirement date fund (57.0 percent of plans).

Company Contributions
Profit sharing plans tend to offer the most generous contributions, averaging 8.1 percent of pay. The average company contribution in 401(k) plans is 2.1 percent of pay and in combination plans it is 4.7 percent of pay.

Company Stock
13.8 percent of plans allow company stock as an investment option for participant and company contributions. 3.1 percent of plans allow company stock as an investment option for company contributions only. 26.4 percent of plans limit the amount of plan assets that can be invested in company stock. 35.8 percent of plans make matching company contributions in company stock. An average of 18.1 percent of total plan assets is invested in company stock.

Employee Eligibility and Participation
89.0 percent of U.S. employees at respondent companies are eligible to participate in an employer-sponsored defined contribution plan. On average, 87.3 percent of eligible employees have a balance in the plan. Participants who retired in 2009 participated in the plan for an average of 15.3 years. 22.4 percent of plan participants are no longer actively employed by the plan-sponsoring company.

Hardship Distributions
Hardship withdrawals are permitted in 85.6 percent of plans. The most common reasons for permitting hardship withdrawals include purchase of a primary residence or to prevent eviction or foreclosure (97.9 percent), medical expenses (97.2 percent), and post-secondary education expenses (93.5 percent). 1.9 percent of participants took a hardship withdrawal in 2009, when permitted.

Investment Options
The number of funds offered to plan participants appears to be leveling out after many years of steady increase. Plans offer an average of 18 funds for both participant contributions and for company contributions. The funds most commonly offered are actively managed domestic equity funds (87.3 percent of plans), actively managed international equity funds (86.0 percent of plans), and indexed domestic equity funds (82.4 percent of plans).

Investment Advisors
66.7 percent of companies retain an independent investment advisor to assist with fiduciary responsibility. For 54.2 percent of those companies, the fee is a fixed amount and for 36.1 percent the fee is percentage of plan assets.

Investment Advice
Advice is offered in 60.1 percent of plans, up from 51.8 in 2008. 21.6 percent of participants used advice when it was offered. Participant usage tends to be greatest in small plans.

Loans Availability
Loans are permitted in 90.2 percent of 401(k), 86.6 percent of combination, and 35.5 percent of profit sharing plans. 51.9 percent of plans with loans permit only one loan at a time. In plans with a loan feature, an average of 23.1 percent of participants have loans outstanding, with an average loan amount of $8,760. Loans account for 2.5 percent of total plan assets among plans with loans.

Roth 401(k)
Among plans that permit participant contributions, 41.3 percent allow participants to make Roth after-tax contributions (up from 36.7 percent in 2008). 13.0 percent of participants made Roth contributions when offered the opportunity.

Safe Harbor Plan Design
34.2 percent of plans have a Safe Harbor plan design. 23.4 percent of plans use a safe harbor match and 10.7 percent use a Safe Harbor non-elective contribution.

Target-Date Funds
The availability and use of target-date funds continues to grow. 62.3 percent of plans now offer them. The average allocation of plan assets has more than doubled since 2007 to 10.3 percent.

Vesting Schedules
39.5 percent of plans provide immediate vesting for matching contributions, while 23.0 percent provide immediate vesting for profit sharing contributions. Among plans that do not have immediate vesting, graduated vesting is the most common arrangement for all plan types.