Benchmark Your 401k Plan ...
How Does Your 401k Plan Compare with the "Typical" 401k?
Many plan sponsors want to know how their 401(k) plan stacks up to the typical or average plan. This is often the first question asked when attempting to determine whether an effort should be made to upgrade the features and benefits of the plan. To help you answer this question, we have identified some of the common performance characteristics and features offered by many 401(k) plans and compiled statistics from a variety of sources that will allow you to benchmark your plan.
Eligibility1 How quickly do employers allow new employees to join their 401(k) plan?
- Immediate (one month or less) -- 51%
- 3 Months or 90 Days -- 15.7%
- 6 Months or 1000 hours -- 11.3%
- 1 Year -- 16.7%
- Other -- 5.3%
Employee Contribution Levels Pre-tax participant deferrals average 5.4% of pay for non-highly compensated employees and 6.9% of pay for highly compensated employees.2
Employer Contributions Company contributions average 3.0% of payroll.2 Numerous formulas are used to determine company contributions. In plans permitting participant contributions, the most common formula is a fixed match only, present in 29.5% of plans (including plans with safe harbor matches). For plans with fixed matches, the most common matches are $.50 per $1.00 up to the first 6% of pay (32.2% of plans), $1.00 per $1.00 up to the first 4% of pay (9.8% of plans) and $1.00 per $1.00 up to the first 3% of pay (8.5% of plans).2
Catch-up Contribution for participants aged 50 and older are permitted in 98.0% of plans. Thirty-one percent (31.0%) of these plans offer a match on the catch-up contributions.2
Employee Participation Rate Seventy-seven point seven percent (77.7%) of eligible employees have balances in their 401(k) plans.2
Investment Committee Twenty-eight point two percent (28.2%) of plan sponsors have no investment committee.3
Investment Policy Statement Just over eight out of ten plans (83%) have a written investment policy statement.6
Self-directed Brokerage Accounts Fifteen percentage (15%) of plans offer self-directed brokerage accounts.3
Company Stock As Match Of those plans that offer employer stock as an investment option, 23% invest employer matching contribution exclusively in company stock. Sixty-seven (67%) of these plans allow employees to diversify or transfer employer matching contributions at any time.6
Default Investment for Auto-Enrollment The following funds are used as the default investment option for auto-enrollment:3 Target Date/Lifecycle Fund -- 33.3%
- Balanced Fund -- 15.6%
- Managed Account -- 4.3%
- Stable Value Fund -- 20%
- Money Market Fund -- 9.5%
- Other 17.3%
Loans Fifty-one percent (51%) of 401(k) plans, accounting for 85% of all participants, offer loans to plan participants. The probability of a plan offering plan loans to its employees increases with plan size -- 93% of plans with more than 10,000 participants include a loan provision, compared with 27% of plans with 10 or fewer participants.4 Reasons plans permit loans:5
- Home Purchase -- 95%
- Education Expenses -- 92%
- Medical Expenses -- 86%
- Financial Hardship -- 65%
- Home Improvement -- 43%
- Automobile Purchase -- 16%
- Other -- 8%
Vesting Schedules:2
- Immediate -- 39.5%
- Cliff -- 11.8%
- Graduated -- 45.3%
- Other -- 3.4%
Hardship Withdrawals Most 401(k) plans offer hardship withdrawals (89.4%). The most common reasons for permitting hardship withdrawals include medical expenses (96.7%), home purchase (96.4%), and education expenses (92.9%).2
Automatic Enrollment Twenty-three point six percent (23.6%) of plans automatically enroll employees. It is most common with employers who have over 5,000 employees (41.3%).2 Of those plans which use automatic enrollment, 62.1% of plans have implemented automatically enrollment for eligible new employees only and 37.9% auto-enroll all eligible employees.3
Internet Access2 Over 92% of plans permit participants to make some type of transaction via the Internet. The most common Internet services available to participants are:
- Account Balance Lookup -- 91.2%
- Investment Changes -- 90.5%
- Plan Inquiries -- 80.9%
- Contribution Changes -- 64%
Roth Twenty-two point four percent (22.4%) of plans offer Roth accounts.7
Investment Advice Four out of ten employers (40%) offer outside investment advisory services to employees which can include advice, guidance, and/or managed accounts.6 It is most prevalent in companies with 50-199 employees (56.6%) and least prevalent in companies with 1,000-4,999 employees (32.0%). The most common types of advice offered are one-on-one counseling (62.9%), Internet providers (45.5%) and telephone hot lines (29.1%).2 Who pays for the advice service? In 38.5% of the cases the plan (all employees) pay for the advice service and in 41.4% of the cases only those employees who use the service pay.2
ADP/ACP Tests Twenty-nine percent (29%) of employers use a safe harbor design in lieu of ADP/ACP testing. Of employers who use ADP/ACP testing, 24% fail and limit the percentage of contributions that HCEs may contribute in order to pass the test.6
Sources
1. "401(k) and Profit Sharing Plan Eligibility Survey 2007," Published By: Profit Sharing/401(k) Council of America.
2. "50th Annual Survey of Profit Sharing and 401(k) Plans," Published By: Profit Sharing/401(k) Council of America.
3. "2007 Defined Contribution Survey," Published By: Plansponsor.com.
4. "401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2006," Published By: Employee Benefit Research Institute and the Investment Company Institute.
5. "Plan Loan Restrictions - Reasons Plans Permit Loans," Published By: Profit Sharing/401(k) Council of America.
6. "Trends and Experience in 401(k) Plans 2007," Published By: Hewitt Associates LLC.
7. "Roth 401(k) Survey 2007," Published By: Profit Sharing/401(k) Council of America.
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