A new survey by the Plan Sponsor Council of America shows that 401(k) participants are increasingly using new plan investment features, while usage of hardship withdrawals and loans remains low despite their wide availability.
PSCA, a national nonprofit association committed to retirement savings through employer-sponsored defined-contribution programs, released its 54th Annual Survey of Profit Sharing and 401(k) Plans in October. It takes a hard look at current practices and trends in profit sharing and 401(k) plans.
Last year's survey highlighted that target-date funds and Roth 401(k) plans were becoming more prevalent in the industry. This year, the availability of these types of plans have remained the same, but their usage by plan participants has increased significantly. The survey found that nearly two-thirds of plans offer a target-date fund as an investment option, with an average of 13 percent of the plan assets invested, up from 10 percent of assets in 2009 and just 2.6 percent five years ago. Roth 401(k) has become increasingly available over the past few years. Nearly 46 percent of all plans now offer it, up from 18.4 percent in 2006. Nearly 25 percent more participants made Roth 401(k) deferrals in 2010 when offered the option.
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"Recently, added design features are proving popular with participants," said David Wray, PSCA president, "More of them are taking advantage of the employer-provided investment allocation programs and diversifying their tax-advantages. At the same time, participants are not pulling money out of their plans by taking hardship withdrawals or loans."
Though the majority of plans offer hardship withdrawals, 85 percent, only 1.9 percent of eligible participants took one in 2010, the same percentage as in 2009. Loans also are a common plan feature. Nearly 90 percent of plans allow them, though usage, 24 percent, has not changed much in the last 10 years, the survey found.
The report looked at 820 plans with 10.5 million participants and more than $691 billion in plan assets.
The survey also found that the average plan has about 63 percent of its assets invested in equities. Nearly 42 percent of plans have an automatic enrollment feature, and of those that do offer it, 82.3 percent use this feature with new hires only; 17.7 percent use it for all non-participants. The most common default deferral rate is 3 percent of pay and the most common default investment option is a target-date fund.
The report found that profit sharing plans tend to offer the most generous contributions, averaging 6.8 percent of pay. The average company contribution in 401(k) plans is 2.3 percent of pay and in combination plans it is 4.6 percent of pay.
PSCA, a national nonprofit association of 1,200 companies and their six million employees, advocates increased retirement security through profit sharing, 401(k) and related defined contribution programs to federal policymakers.
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