Auto Features Contributing to Participation, Average Balance
It was a good year for individual account plans, including 401(k)s and 457s. In fact, 2017 may go in the record books as the first year the number of plans with an average auto-enrollment deferral rate of 6% exceeded the number of plans with a default deferral rate of 3%, as it has commonly been.
This change, along with market appreciation, may well have factored into the significant increase in average 401(k)/457 account balances during the year. Account increases in 2017 averaged $9,583, compared to average increases of $2,502 in 2016. Participants aged 60-64 experienced the most dramatic account balance increases, from $150,736 in 2016 to $168,725 in 2017 — a difference of $17,989.
The same report from which these findings were culled found additional positive impacts on employee retirement plans stemming from auto-enrollment. Average participation in plans using auto-enrollment was 42 percentage points higher than their non-auto-enrolling counterparts; 87% of employees participated in plans with auto-enrollment, compared to 45% of those without this feature.
Automatic deferral increases also showed remarkable success. In plans requiring participants to opt out of automatic increases, about a third of participants opted out while two-thirds allowed their deferral rates to increase automatically. When required to opt in, just 13% did so.
This strategy may be partly responsible for the uptick in deferral rates overall in 2017. Employee pre-tax deferrals reached 8.3% for 2017, the highest ever reported for this survey.
Roth Popularity Continues
Roth accounts have increased in popularity among the surveyed plans. Employees between the ages of 20 and 40 took particular advantage of the availability of Roth accounts in their plans. Roth contributions were allowed in 67.4% of plans in 2017, compared to 60.3% the previous year. All but the very youngest participants — those under 20 years of age — contributed more via Roth contributions in 2017 than in 2016. Taking the most advantage of these post-tax contributions were employees aged 30-39; their Roth contributions increased by 1.4% over 2016.
Participants Pick a Few Investments from a Large Array of Choices
The number of investment options available in the plan for 2017 increased, for the fifth year in a row. On average, plans offered 16.2 investment options, up very slightly from 16.1 on average the year before. Participants, however, seem to be concentrating on just a few investment selections for their individual accounts. The average number of investments in a participant’s account in 2017 was 2.5, compared to the high mark of 3.0 in 2008.
Target date plans had been adopted by 94% of plans by 2017, the highest number yet in this survey. In fact, since 2011, the number of plans offering target date funds rose by more than 9%.
See more results from Reference Point, T. Rowe Price Defined Contribution Plan Data as of December 31, 2017, at https://tinyurl.com/TRP-DC-Data.
Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; 877-306-5055; www.kmotion.com
© 2018 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.