Higher Participation In 401(k) Plans

More U.S. companies and participants are putting money into 401(k) plans, and they are doing so at higher rates than in previous years, according to the not-for-profit Plan Sponsor Council of America's (PSCA) annual survey of Profit Sharing and 401(k) Plans. The survey, which was conducted in early 2012, reports on the 2011 plan-year experience.

The percentage of eligible employees making contributions to a plan showed improvement, increasing from 76.9 percent in 2010 to 79.5 percent last year. In addition, the average company contribution increased to 4.1 percent of pay (up from 3.7 percent in 2010), and the average participant deferral rate increased from 6.2 percent to 6.4 percent of pay.

"The continued upward trend in participation and contribution levels is a result of the ongoing, sustained efforts of plan sponsors to effectively communicate their plan and educate their participants on the benefits of enrolling and staying in the plan," said Bob Benish, PSCA's interim president and executive director, in a media statement.

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Plan design changes intended to increase participation continued to grow in popularity, following the trend of the past few years. These included:

Target-date funds. The availability of target-date funds increased from 61.5 percent to 68.6 percent of plans. The average allocation of plan assets invested in target-date funds reached 12.4 percent.

Roth 401(k) option.
Roth after-tax contributions were permitted in nearly half of plans (49 percent), up from 45.5 percent in 2010. At retirement, distributions from Roth contributions, including dividends and capital gains, are tax free. When offered the opportunity, Roth contributions were made by 17.4 percent of participants.

Automatic enrollment deferrals.
Automatic enrollment is used by 45.9 percent of plans (up from 41.8 in 2010). The percentage of auto enrollment plans with a default deferral rate greater than 3 percent increased from 25.8 percent of plans in 2010 to 32.2 percent. The most common default investment option was a target retirement date fund, present in 69.7 percent of plans.

Other survey highlights included:

Asset allocation. The average plan has approximately 60.6 percent of assets invested in equities (stocks or stock funds).

Employee eligibility. 88.4 percent of U.S. employees are eligible to participate in their employer's defined contribution plan. Most companies allow employees to begin contributing to the plan immediately upon hire (60.3 percent of companies).

Hardship distributions. Hardship withdrawals were permitted in 90.5 percent of 401(k) plans; 1.8 percent of participants took a hardship withdrawal in 2010, when permitted.

Investment advice. Investment advice is offered by 57.8 percent of plan sponsors, and 19.3 percent of participants used advice when it was offered. Participant usage tended to be greatest in small plans.

Loans. Loans were permitted in 89 percent of 401(k) plans; 54 percent of plans allowing loans permit only one loan at a time.

Vesting schedules. 38.9 percent of plans provide immediate vesting for matching contributions, while 23.9 percent provide immediate vesting for profit sharing contributions.

The survey collected data from 840 companies with 10.3 million participants and $753 billion in plan assets.

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