2017: A Good Year for Participants

Auto Features Contributing to Participation, Average Balance

Increases

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.