Here are 7 ways 401(k)s have changed in just 5 years

By Nick Thornton | January 21, 2020 at 05:10 PM

In 2018, the average account balance in 401(k) plans hit an all-time high, according to the Plan Sponsor Council of America’s 62nd Annual Survey of Profit Sharing and 401(k) Plans.

BenefitsPRO compared data from the 58th Annual survey, which accounts for 2014, to the most recent data to help understand what changes in design features, if any, explain the 36 percent increase in the average account balance over just five years. See the gallery that follows and the article below to learn more.

1. Average 401(k) account balance

PSCA 62nd Survey for 2018

·         $120,433 for all plan sizes

·         highest average account balance was in plans with fewer than 50 participants, at $193,794

PSCA 58th survey for 2014

·         $88,270 for all plan sizes

·         highest average account balance was in plans with fewer than 50 participants, at $129,725

2. Participant average deferral in 401(k)s of all sizes

PSCA 62nd Survey for 2018

7.3 percent

PSCA 58th survey for 2014

6.3 percent

3. Percentage of plans that provide a suggested savings rate

PSCA 62nd Survey for 2018

·         30.2 percent

·         almost a quarter of those plans recommend a 10 percent savings rate

PSCA 58th survey for 2014

·         24.4 percent

·         only 9.8 percent recommended a 10 percent savings rate

4. Automatic enrollment 

PSCA 62nd Survey for 2018

·         60.2 percent of all plans auto-enroll participants

·         only 30.5 percent of plans with less than 50 participants do so

·         70.8 percent of small employers said they did not use auto-enrollment because they were satisfied with participation rates 

PSCA 58th survey for 2014

·         52.4 percent of all plans auto-enroll participants

·         only 19 percent of plans with less than 50 participants do so

·         66.7 percent of small employers said they did not use auto-enrollment because they were satisfied with participation rates

5. Auto-default deferral rates increase

PSCA 62nd Survey for 2018

·         29.7 percent of plans auto-default at a 6 percent savings rate

·         31.6 percent default at 3 percent

PSCA 58th survey for 2014

·         16.3 percent of plans auto-default at a 6 percent savings rate

·         50.7 percent default at 3 percent

6. Automatic escalation for all plans

PSCA 62nd Survey for 2018

·         19.2 percent auto-escalate, most commonly at 1 percent annually

·         26.7 percent of plans with more than 5,000 participants auto-escalate

·         only 12.8 percent of plans with fewer than 50 participants auto-escalate

PSCA 58th survey for 2014

·         16.5 percent auto-escalate, most commonly at 1 percent annually

·         20.2 percent of plans with more than 5,000 participants auto-escalate

·         only 12.5 percent of plans with fewer than 50 participants auto-escalate

7. Employer contributions increasing

PSCA 62nd Survey for 2018

·         5.1 percent of salary when a DB plan was not also offered

·         the largest plans contributed an average of 13.9 percent of their total net profit to 401(k) accounts

·         plans with 50 to 199 participants contributed an average of 16 percent of their total net profit to 401(k) accounts

PSCA 58th survey for 2014

·         3.1 percent of salary when a DB plan was not also offered

·         the largest plans contributed an average of 6.4 percent of their total net profit to 401(k) accounts

·         plans with 200 to 999 participants contributed an average of 11.3 percent of their total net profit to 401(k) accounts

In 2018, the average account balance in 401(k) plans hit an all-time high, according to the Plan Sponsor Council of America’s 62nd Annual Survey of Profit Sharing and 401(k) Plans.

The survey—now running into an astonishing sixth decade—offers arguably the most comprehensive look into the defined contribution space.

BenefitsPRO compared data from the 58th Annual survey, which accounts for 2014, to the most recent data to help understand what changes in design features, if any, explain the 36 percent increase in the average account balance over just five years.

Strong equity markets clearly provided more than a nudge, but they were actually down in 2018: the S&P 500 Index was dropped 6.59 percent in 2018; in 2014 it returned 11.7 percent.

But plan design also clearly matters. Individual deferral rates are up in the past five years, and there has been a substantial shift in employers auto-enrolling at a 6 percent deferral rate, as opposed to 3 percent. Auto-escalation is increasing, and notably, so are employers’ contributions as a percentage of company net profits.

https://www.benefitspro.com/2020/01/21/here-are-7-ways-401ks-have-changed-in-just-5-years/?utm_source=email&utm_medium=promo&utm_campaign=advisor_hottopic&utm_content=012320&utm_term=bpro