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How Does Your 401(k) Compare?


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Many plan sponsors and financial advisors 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 a 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 the statistics below from a variety of sources* that will allow you to benchmark your plan as of 2020.

Automatic Enrollment

Sixty-point two (60.2) percent of plans have an automatic enrollment feature. Fifty-Nine-point five (59.5) percent of plans with auto-enrollment use a default rate of more than 3%, which is up from 57.5% of plans in 2018. Fifty-Three-point six (53.6) percent of plans with automatic enrollment automatically increase default deferral rates over time. The most common default investment option is a target-date fund, present in 81.8% of plans.

Of those that don’t have an automatic enrollment feature, 53.4% say they already have a high participation rate and do not feel they would benefit, and 13.1% think it would be too expensive due to increased cost of the match.

Catch-up Contribution

Catch-up contributions for participants aged 50 and older are permitted in 84.6% of plans. Fifty-four-point seven (54.7) percent of these plans offer a match on the catch-up contributions.

Company Stock

Only 12% of plans allow company stock as an investment option for both participant and company contributions. Four-point two (4.2%) percent of plans allow company stock as an investment option for company contributions only.

Eligibility

In 1998, only 24% of plans allowed employees to begin contributing to their 401(k) plans immediately upon employment. Now, 51.6% do so. Thirty-nine-point three percent (39.3) of companies that provide a matching company contribution provide immediate eligibility to receive the match, while 22.1% require one year of service prior to eligibility to receive it.

Employee Participation Rate

On average, 89.3% of eligible employees have a balance in the plan. Twenty-point three (20.3) percent of plan participants are no longer actively employed by the plan-sponsoring company.

Employer Contributions

The average company contribution in 401(k) plans is 5.2% of pay. Numerous formulas are used to determine company contributions. The most common type of fixed match reported by 43.1% of employer’s match $1.00 per $1.00 up to a specified percentage of pay (commonly 6%). Thirty-four-point three (34.3) percent of all plans match $0.50 per $1.00 up to a specified percentage of pay (commonly 6%). 37% of employees said the company match was the primary reason they participate in the plan.

Hardship Withdrawals

Hardship withdrawals are permitted in 76.3% of 401(k) plans.

Investment Advice

Investment advice is offered by 32.1% of respondent companies. Twenty-three-point eight (23.8) percent of participants used advice when it was offered.

Investment Advisors

Seventy-point eight (70.8) percent of companies retain an independent investment advisor to assist with fiduciary responsibility.

Investment Options

The number of funds offered to plan participants has leveled off after many years of steady increase. Plans offer an average of 19 funds for both participant contributions and for company contributions. Assets are most frequently invested in target date funds (20.7%), actively managed domestic equity funds (19%), indexed domestic equity funds (17.8%), company stocks (9%), and stable value funds (7.2%).

Investment Policy Statement

Eighty-seven-point six (87.6) percent of all plans have a written investment policy statement.

Loans

Loans are permitted in 84.1% of 401(k) plans. Fifty-six point three (56.3) percent of plans that allow loans permit only one loan at a time. Eighty-one-point nine (81.9) percent of plan that allow loans charge some type of loan fee. On average the borrowed amount was 20% of their account balance. The average loan interest rate is 6.5%

Roth 401(k) Feature

Eighty (80) percent offer a Roth feature and 3% are considering offering it in the next 12 months. The primary reason cited for implementing a Roth was to maintain a competitive plan. When offered the opportunity, 20% of participants made Roth contributions.

Self-directed Brokerage Accounts

Self-directed brokerage accounts are offered in 21.5% of plans.

Safe Harbor Plan Design

Forty-six-point five (46.5) percent of plans have a Safe Harbor plan design in lieu of ADP/ACP testing.

Vesting

Thirty-four (34) percent of plans provide immediate vesting for matching contributions. Twenty-six-point six (26.6) percent of plans offer immediate investing for non-matching contributions. These numbers have been declining since 2014.

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The most current studies and reports available have been used to compile the information. The following is a list of source material:

  • “62nd Annual Survey of Profit Sharing and 401k Plans,” published by Plan Sponsor Council of America
  • “2019 Defined Contribution Benchmarking Survey Report” published by Deloitte Consulting

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It’s never a bad time to review your fiduciary fulfillment, but in our current environment it may be more important than ever.  You may have major shortcomings or just need to tweak your procedures.

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In that light, Benefit Plans Plus, LLC is the exclusive source of the 401(k) Sales Champion Workshop for Financial Advisors in St. Louis, MO, Kansas City, MO, and Southern Illinois.  

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