Plan Enhancements Drive Record Retirement Savings Rates

Research from the Plan Sponsor of America (PSCA), part of the American Retirement Association (ARA), finds that employers are making significant plan design enhancements that are likely driving the record contribution rates. 

PSCA’s 61st Annual Survey of Profit Sharing and 401(k) Plans finds that employers are contributing an average of 5.1 percent of pay to their employees’ 401(k) accounts, while the average deferral rate by participants improved to 7.1 percent. The research also finds a series of plan design enhancements by plan sponsors, including higher default rates, more generous matches and earlier plan eligibility which may be supporting higher saving rates.

“Despite the dire predictions we often hear, workers with the support of employment-sponsored retirement programs are clearly making progress,” said Jack Towarnicky, PSCA’s executive director. “The increases in retirement contributions from both plan participants and plan sponsors confirm the positive impact of company-sponsored retirement savings plans.” The survey also finds that a larger percentage of eligible employees are participating in their plan - the percentage of eligible employees with an account balance has increased by more than six percentage points in the last 10 years. 

With many financial professionals recommending a savings rate between 10 and 15 percent, the total savings rate of more than 12 percent in the survey shows that many American workers are well on their way to improved retirement outcomes. “Increasingly, those covered by a 401(k) or other qualified retirement plan are doing the right things to prepare for retirement, largely because employers are doing to the right thing to support them,” said Hattie Greenan, PSCA’s director of research and communications. 

Among the supportive plan design trends:

• Match gains: There is a shift towards more generous matching formulas—the use of dollar-per-dollar matching of more than three percent of pay increased by nearly 50 percent from 24.1 percent in 2016 to 35.8 percent in 2017.
• Starting points: Companies continue to adopt automatic enrollment with 61.2 percent of plans now using it to boost enrollment. 
• Higher ground: 60 percent of automatic enrollment plans use a default deferral rate of more than three percent—up from less than 30 percent of plans 10 years ago.
• Rate state: Nearly a third of plans now provide a suggested savings rate for participants—more than four-in-10 companies suggest a rate of 10 percent or more.
• Catching up: The number of eligible participants making catch-up contributions has climbed steadily and now stands at 29.3 percent for 2017. 

The 61st Annual Survey of Profit Sharing and 401(k) Plans, the longest running survey of its kind, also covers topics such as monitoring investment policy statements, alternative investment options, company stock, distribution and withdrawals, participant education and communication, recordkeeping and other plan administration practices. The report includes a comprehensive executive summary that examines the 10-year trends of key plan benchmarking data points. To connect with Research Director Hattie Greenan about the survey’s findings, contact her at [email protected].