Looking at 401(k) plan design in large versus small retirement plans
Insights from the Brightscope/Investment Company Institute (ICI) survey on DC retirement plans.
A new report on defined contribution plan data provides insights into how plan features like automatic enrollment tools are being offered to encourage participation, what types of assets plan managers are choosing for 401(k) investments, and who employers are turning to for their retirement plan recordkeeping services.
The Brightscope/Investment Company Institute (ICI) report studied DC retirement plans from the year 2017 and found large plans were more likely to offer employer contributions, automatic enrollment and participant loan tools to encourage participation.
Auto-enrollment, employer contributions, participant loans
In addition, 401(k) plans that feature automatic enrollment are more likely to also offer both employer contributions and have participant loans outstanding, the survey found.
Employer contributions. Employer contributions–including simple matches, tiered matches and maximum dollar matches–were a popular plan feature across the board with 95 percent of plans with more than 5,000 participants offering employer contributions.
Simple matching formulas were the most common type of employer contribution in 2017, the survey said. According to the study, employer contributions represent a significant portion of contributions to large 401(k) plans in 2017, representing $115 billion, or about one-third, of total contributions.
Automatic enrollment. Automatic enrollment is a significant innovation in 401(k) plan design, and large 401(k) plans were more likely to have adopted these tools, according to the survey.
More than half of large 401(k) plans with at least $250 million in plan assets and nearly 60 percent of plans with more than $1 billion in plan assets automatically enrolled their participants in 2017.
That compares with only 20 percent of plans with $10 million or less in plan assets that enrolled participants automatically.
Loans. Large 401(k) plans are also more likely to offer participants loan options. More than 90 percent of plans with more than $50 million in assets had participant loans outstanding, compared with 76 percent of plans with between $1 million and $10 million and 32 percent of plans with less than $1 million.
Although loan options are widely available, the survey found that the amounts borrowed represent less than 2 percent of 401(k) plan assets and fewer than one in five participants had loans outstanding.
Investment options
On average, large 401(k) plans offered 28 investment options in 2017, with larger plans tending to offer the most options and smaller plans offering fewer choices — about 22.
Equity funds were the most prevalent investment option, followed by target date funds and bond funds. Most plans offered at least one domestic equity fund, international equity fund, domestic bond fund and target date fund.
Mutual funds were the most common investment vehicle in 401(k) plans, while equity funds account for the largest share of assets.
Target-date funds have become increasingly popular, with 82 percent of plans offering such funds in 2017 compared with 32 percent in 2006, according to the survey.
Use of recordkeepers
Insurance companies are the most common type of recordkeeper, providing services for about half of large 401(k) plans. They were significantly more likely to provide recordkeeping services for smaller plans, the survey found.
Asset managers including mutual fund companies, which were the second most common recordkeeper choice, were more likely to provide services for larger plans.
Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel. She also was a reporter for Business Insurance magazine covering workers compensation topics. Kristen graduated from the University of Missouri with a degree in journalism.
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