Employer-Sponsored Plans Thrive, Thanks To Education

Agents and advisors are helping the retirement plan market bounce back from the 2008 crash and reach new heights of participation.

Employees are saving more than ever in their employer-sponsored plans, said Hattie Greenan, director of research and communications for the Plan Sponsor Council of America. This is due in large part to plan sponsors and providers educating participants on market volatility, asset allocation and target-date funds. These were among the findings in the PSCA's 58th annual study of plan sponsors, which was released recently.

Agents and advisors are part of that equation, partnering with plan sponsors to provide education services to participants, Greenan added.

“We really are seeing the education coming from a variety of sources,” she said. “The advisors and providers are providing that input as well.”

In the survey, 67 percent of respondents said that their current plan provider is providing education. Forty-two percent of plan providers said they provide that education through a third party, Greenan told InsuranceNewsNet.

PSCA’s survey reflects the 2014 plan-year experience of 592 defined contribution plan sponsors.

Troubled times

During the market decline in 2008, many DC plan participants saw their retirement savings accounts drop significantly. Critics of defined contribution retirement plans questioned the viability of the private, employer-sponsored system.

Although the system is not perfect, it has recovered and adapted, and so have plan participants. Many thought employees would flee their plans or stop contributing, but that is not the case, Greenan said.

Participation rates have remained steady the last several years with about 88 percent of eligible participants having an account balance, and 80 percent making contributions to the plan.

Deferral rates returned to pre-crash levels, and are rising, increasing from 5.3 percent of pay in 2013 to 5.8 percent of pay for lower-paid employees.

Although there was an increased use of plan loans in 2008, the percentage of participants with loans and the percentage of assets loaned have been decreasing and have reached their lowest rates in more than a decade. Just 14.6 percent of participants have an outstanding loan balance and only 0.7 percent of all plan assets are held in loans.

“The increase in savings rates by participants and the steady plan participation rates demonstrate that participants value their company’s retirement plan,” Greenan said. “The fact that loan usage has decreased while savings rates increased indicate that education about how plans and markets work is working.”

Other key findings include:

• Nearly all full-time employees are eligible to participate in the plans (99 percent), and half of plans allow part-time employees to participate.
• More than half of plans (51 percent) do not have a service requirement to receive matching contributions.
• More than 60 percent of plans now allow Roth IRA contributions (62 percent).
• One-quarter of plans suggest a target deferral rate to participants. Of those, half suggest a rate higher than 6 percent.
• More than 80 percent of plans use a qualified default investment option. The QDIA is a target-date fund in three-fourths of these plans.
• 70 percent of large plans (those with 5,000 or more participants) use automatic enrollment (52.4 percent of all plans use it, up from 50.2 percent in 2013).
• 20 percent of plans are using mobile technology to reach participants (including 30 percent of large plans).

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected].

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.