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Plan Sponsors Prioritize Retirement Readiness

Plan sponsors remain focused on whether their participants will be “Retirement Ready,” continually looking for additive measures to potentially impact participant preparedness for a sustainable and rewarding retirement.

The 59th Annual Plan Sponsor Council of America Survey [1], Vanguard’s How America Saves 2016 [2]  and Fidelity’s Building Futures[3] all note that the myriad of plan features that could viably set participants up for success remain very much front of mind for plan sponsors. The most notable observations included:

Automatic Enrollment

  • The PSCA Survey notes that automatic enrollment is featured in over 58% of Defined Contribution plans surveyed; as compared with 24% in 2006.
    • Among plans with over 5,000 participants surveyed, 67% of plans have an automatic enrollment feature.
  • While 30% of Fidelity’s vast array of 22,000 corporate DC Plans provided automatic enrollment, 65% of its plans with 5,000+ participants provided automatic enrollment, with a nearly identical figure for plans with 2,500 – 5,000 participants as well.
  • Vanguard similarly noted that 60% of their plans with 5,000+ participants provided the feature.

Automatic Escalation

  • Fidelity notes that 27% of plans with 5,000+ participants offer an automatic escalation feature, with opt-out rates remaining at a very low 7%.
  • The PSCA notes that 24% of plans automatically enrolling participants offer auto escalation, and 33% of plans with 5,000+ participants offer the feature. Additionally, 16% of plans provide an automatic escalation feature solely for “under-contributing” participants.

Deferral Rates

  • The PSCA notes that among the plans automatically enrolling employees, the percentage of those plans that default participants at a deferral rate above 3% is currently 52%, up from 40% in 2014 and 23% in 2006.
  • Vanguard notes a growing trend as well with regards to a higher default deferral rate among plans with automatic enrollment to drive participant savings rates [2]:
    Default Deferral Rate for Participant Auto-Enrollment 2006 2016
    2% 20% 8%
    3% 52% 48%
    4% 10% 16%
    5% 8% 11%
    6% 7% 16%

Target Date Funds (TDFs)

  • Across all PSCA Plan assets surveyed, 20% of total aggregate plan assets are invested in TDFs – compared with just 4% ten years ago.
  • Fidelity notes that 85% of their plans use TDFs as the default, while for plans with 5,000+ participants that number rises to 96%.
  • Vanguard noted that 9 of 10 plan sponsors offered TDFs, while for plans using auto enrollment, 97% use TDFs as the default investment. For perspective, 63% of Vanguard plans used TDFs as the default fund in 2006.

Deloitte’s Annual Defined Contribution Benchmarking Survey [4], also shows plan sponsors’ growing prioritization of participant saving rates and income replacement rather than previously more topical measures such as participation rate. The survey indicated the following feedback from plan sponsors:

  • When asked, “What do you consider the most important objective of the plan?”
    • 38% of respondents indicated “Facilitating Retirement Income Replacement”, followed by 25% that indicate “Increasing Participant Savings Rates”.
    • “Improving Communication and Education Efforts” and “Increasing Participation Rates” received 14% of the votes each.
  • When asked to rate a list of pertinent topics based on their importance to the plan and interests of the retirement benefits committee, leading answers included:
    • Providing the justifyinvestments to help participants achieve retirement goals (44%)
    • Retirement readiness of active participants (42%)
    • Improving participant education (35%)
    • Reducing plan risk and potentially fiduciary responsibility (33%)

[1] 59th Annual Survey: PSCA’s Annual Survey of Profit Sharing and 401(k) Plans; Reflecting 2015 Plan Experience.
[2] Vanguard’s How America Saves 2016, Vanguard 2015 Defined Contribution Plan data.
[3] Building Futures: Plan and Participant Data Analysis – Fidelity analysis of 22,000 corporate DC plans as of December 31, 2015.
[4] Deloitte Annual Defined Contribution Benchmarking Survey 2015: “Ease of Use Drives Engagement in Saving for Retirement.”