By Pension and Benefits Editorial Staff
After years of steady increase, plan sponsor adoption of automatic enrollment features, Roth options, and target-date funds may be leveling off, according to the Plan Sponsor Council of America’s (PSCA’s) 62nd Annual Survey of Profit Sharing and 401(k) Plans. Each of these features received considerable attention following passage of the Pension Protection Act of 2006 (PPA), which eliminated the sunset on Roth features and provided fiduciary relief and plan design guidance.
“These features have seen significant uptake over the last 10 or so years and they have succeeded in helping to boost plan participation, employee contribution rates, employer financial support, and investment diversification, which, in combination, have resulted in increased account balances,” said Research Director Hattie Greenan. However, “… while these features have been added by the majority of surveyed plans, not every plan sponsor has or will adopt these innovations.”
Automatic enrollment. The number one reason more than half of the plans surveyed have not adopted automatic enrollment is that they are satisfied with participation rates.
“It isn’t surprising that we’ve reached a plateau regarding adoption of automatic features,” said Jack Towarnicky, Principal Researcher. “Plan sponsors have had more than a decade to consider the appropriateness of such features for their plan. Given the resulting improvement in participation and contribution rates by the plans who have adopted these features, auto features look like they are here to stay.”
Roth 401(k) feature. Today, the Roth option is offered in a super-majority of 401(k) plans, according to PSCA. While the percentage of surveyed plans offering Roth features has slowed recently, the percentage of workers contributing to their plans on a Roth basis continues to increase--23% in 2018, up from 15.6% in 2008. PSCA notes that the Roth 401(k) may be a more valuable option compared to pre-tax 401(k) contributions for some participants, but, for plan sponsors, there typically are no identifiable financial benefits to adding Roth 401(k) features sufficient to offset the added cost and complexity in administration and communication.
Target date funds. Target date fund (TDF) availability and usage is tied to the increased use of automatic features, according to PSCA. The survey shows that 70% of plans have adopted a Qualified Default Investment Alternative (QDIA), and most plan investment fiduciaries (75.1%) that have adopted a QDIA have selected a TDF to fulfill that role. “As a result of automatic features and QDIAs, TDFs are now the most frequently used investment in 401(k) plans,” Greenan explains. “TDFs now account for 20.7% of plan assets, while ten years ago, only 5.1% of plan assets were allocated to TDFs. So, even if slightly fewer plans are offering TDF investments, we should expect to see continued growth in participants’ allocations to these funds, or to comparable offerings, such as managed accounts.”
PSCA press release, January 28, 2020.
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