10th National 403(b) Retirement Plan Survey: Organizations Adopting Best Practice Plan Designs

DES MOINES, Iowa, Sept. 26 -- Principal Financial Group issued the following news release:

Organizations that sponsor 403(b) plans are accelerating adoption of plan automatic features to improve plan design and participant outcomes, according to the 2018 annual 403(b) Plan Survey from the Plan Sponsor Council of America (PSCA). The report, sponsored by Principal Financial Group(R), also confirms more organizations are working with advisors. This year marks the 10th year of the survey and significant trends have emerged over that period.

The PSCA 403(b) Retirement Plan Survey, based on responses from nearly 600 non-profit organizations across the U.S., is the only research report of its kind that delivers actionable data that plan sponsors need to help workers reach their retirement goals. Since the non-profit sector accounts for at least 1 in 10 jobs in more than half of states1, the plan design changes reflected in this year's survey represent a significant boost to the nation's retirement security.

"Throughout the past decade, PSCA research has revealed the significant contributions 403(b) plan sponsors have made to their workers," notes Hattie Greenan, Director of Research and Communications at PSCA. "More importantly, they continue to do so by embracing plan design features like automatic enrollment and offering services like 1-on-1 counseling to help workers make better decisions."

The PSCA 403(b) survey findings support financial advisors' discussions with plan sponsors to recommend plan design changes that may improve their plan, and thus participant outcomes.

"The PSCA survey suggests a correlation between an increased presence of advisors among 403(b) plans, and higher adoption rates of positive plan design features such as auto enrollment," said Aaron Friedman, non-profit national practice leader, Principal(R). "The progress is very encouraging, but more work needs to be done."

Highlights from the 10th PSCA 403(b) survey

More plan sponsors see the value of advisors.

The use of an investment advisor who acts as a plan fiduciary has increased by 40% in just 4 years--likely spurred by advisors helping clients manage the complex regulations that govern plans.

Auto-enrollment features continue to improve plan design.

The use of automatic enrollment increased by 45% from 2008, and is now used by nearly a quarter of plans (23.9%). More than a third use a default contribution rate higher than 3%. Organizations offering auto-enrollment see auto-escalation as a good companion service. Of those offering auto-enrollment, more than half (56.6%) also offer auto escalation--an automatic increase in the initial savings rate--up from 43% in 2015.

More plans have investment policy statements.

This year, nearly 60% of plans have an investment policy statement, up from 46% in 2008.

Sponsors are streamlining their investment lineup.

Sponsors are realizing that more isn't necessarily better when it comes to investment options. This year, 403(b) plan sponsors offered an average of 25 investments -- down from a high of 31 in 2013.

Roth options are expanding.

The number of employers making Roth contributions available to employees is up 169% from 2010 (13.9%) to 2018 (37.4%). Nearly half of plans with more than 1,000 workers now offer Roth.

Looking ahead

PSCA's survey data points to the need for continued focus in areas of partnering with advisors, auto-enrollment, and plan governance measures to better prepare American workers for retirement. Despite a dramatic expansion in recent years, three-fourths of 403(b) plans do not currently have auto-enrollment features. Additionally, nearly 44% of non-profits are dealing with complex issues without the assistance of an advisor.

Based on this year's findings, there are several trends to monitor:

Fluctuation of investment options available to employees

Increasing access to Roth

Re-evaluation of employer contribution formulas

"To keep improving participant outcomes, plan sponsors need to continue the improvements that are reported in the survey," said Friedman. "Setting up the plan for success is imperative--as it encourages participants to start saving early and to increase their deferral percentage as their salary grows over time."

About the PSCA 403(b) Plan Sponsor Survey

PSCA, part of the American Retirement Association, conducted its tenth annual survey of 403(b) plan sponsors in the spring of 2018. The survey received responses from 580 non-profit organizations that currently sponsor a 403(b) plan for employees and range in size and industry from small community-based organizations to large hospital and university systems. For more information, visit PSCA.

About Principal(R)

Principal helps people and companies around the world build, protect and advance their financial well-being through retirement, insurance and asset management solutions that fit their lives. Our employees are passionate about helping clients of all income and portfolio sizes achieve their goals--offering innovative ideas, investment expertise and real-life solutions to make financial progress possible. To find out more, visit us at principal.com.

Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.

Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group(R), Des Moines, IA 50392.

Footnote:

1 "How many people are employed in the U.S. nonprofit sector?" GrantSpace, 2018.