403(b) retirement plan sponsors shifting focus
Retirement planning edges out increasing employee participation as the primary goal of education efforts at 403(b) organizations.
An increasing number of organizations that provide 403(b) plans said retirement planning is now their top employee education priority, a shift away from a traditional focus on increasing employee participation, according to the Plan Sponsor Council of America’s 12th Annual 403(b) Plan Survey.
About 35 percent of respondents said their primary purpose for providing plan-related education was retirement planning in 2019, compared with 30 percent who stated it was to increase participation.
Employers rely heavily on email (90.4 percent) to educate employers, along with web sites (48.7 percent), enrollment kits (40.9 percent), and one-on-one counseling with a financial advisor (40 percent).
“The fact that more 403(b) plan sponsors are making retirement planning a priority part of financial education for employees is significant,” said Kevin Morris, vice president and chief marketing officer, retirement and income solutions at Principal, which sponsored the survey. “It suggests an increased focus on retirement outcomes for employees. Consultants and financial professionals are likely helping to drive this trend as they work with organizations and plan service providers to share educational resources on saving, budgeting and debt management.”
Additional 403(b) findings:
Participation and contributions: The data also indicated strong trends in terms of participation and contributions, according to the survey. Continuing a three-year upward trend, the percentage of employees eligible to participate in 403(b) plans increased to 89 percent, up from 83.7 percent in 2016.
Participants contributed an average of 7.2 percent of their gross annual pay to the plan, up from 6.6 percent in 2018 and 5.4 percent in 2011. About one-quarter of plans include an automatic enrollment feature, an option that remains more prevalent at organizations with more than 1,000 participants, the survey found.
Nearly all organizations make contributions to their 403(b) plan, with half making matching contributions only, one-quarter making non-matching contributions, and 20 percent making both. The average contribution per active participant in 2019 was $4,491, or 6.3 percent of payroll, up from 5.5 percent in 2018 and 4.7 percent in 2017.
Roths: Roth availability jumped significantly between 2018 and 2019 to 46.8 percent of plans from 36.9 percent. About 12 percent of participants made Roth contributions in 2019, according to the report.
Investment choices: In addition, 403(b) employees had 25 funds to choose from on average for organization contributions and 26 for participant contributions. Almost all plans offer mutual funds, while 80 percent offer target-date funds and 57.4 percent offer annuities.
Loans: Seventy percent of plans allow participants to borrow against their account. More than half allow loans for any reason, while 17.5 percent permit loans only for circumstances of hardship. About 12 percent of participants have loans outstanding with an average loan balance of $9,483.
Withdrawals: Eighty percent of plans allow participants to take a hardship withdrawal, including purchasing a home or to prevent eviction or foreclosure (89.7 percent), paying for post-secondary education (68.4 percent); and for paying for medical expenses (66.2 percent). Fewer than one percent of plan participants took a hardship withdrawal in 2019.
The survey measured responses from about 400 nonprofit organizations across the United States.
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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