More 403(b) Sponsors Contributing to Employee Accounts

Non-profit organizations that sponsor 403(b) retirement plans saw steady increases in participant contributions, leading to higher average account balances, according to the 2015 403(b) Plan Survey from the Plan Sponsor Council of America (PSCA). 

The annual benchmarking survey of 403(b) plans, sponsored by the Principal Financial Group, also found a significant increase in the number of plans offering an employer contribution—up to 96.6% percent in 2014 from 82.7% in 2013. Nearly one-quarter of 403(b) plan sponsors match employee contributions dollar for dollar up to the first 5% or 6% of salary.

“The large jump in plans offering employer contributions is one of the most noteworthy findings in this year’s survey,” says Hattie Greenan, PSCA’s director of research and communications. “Non-profits recognize their role in helping employees save, and the nearly universal adoption of employer contributions is proof of that commitment.” 

Average account values among 403(b) plan participants grew to $62,513 in 2014, compared to $54,600 in 2013. Participants contributed an average of 6% of their annual pay to their plan, up from 5.8% in 2013.

While the survey uncovered many positive developments for 403(b) plans in the 2014 plan year, adoption of some plan features remained stagnant. Just 16.2% of 403(b) plans use automatic enrollment, up slightly from last year’s 16%. However, 403(b) plan sponsors that have implemented automatic enrollment are migrating toward more appropriate savings rates: 20.3% of plans with automatic enrollment set the default at 5% or greater, up from 16.9% in 2013.

“Automatic features are key to helping participants reach their savings goals, but they need to be implemented the right way. It’s encouraging to see plan sponsors setting their defaults at a more appropriate rate,” says Aaron Friedman, national tax-exempt practice leader at The Principal.

On average, 76.8% of eligible active employees have balances in their 403(b) plans, and 67% of eligible employees made contributions to their accounts in 2014. Greenan tells PLANSPONSOR that while the use of automatic enrollment is low, the increase in employers contribution to participant accounts and generous match formulas may be motivating participants to save.

The PSCA 403(b) plan survey also found the availability to make Roth contributions to 403(b) plans has more than doubled in the last five years, with 25.2% of 403(b) plans currently permitting the after-tax contributions. Roth features are more common at large organizations: half of plans with 1,000 or more participants offer Roth while 10.9% of organizations with fewer than 50 participants offer it. Slightly more than 10% of participants made Roth contributions when permitted.

More than one-quarter (25.5%) of 403(b) plan sponsors offer investment advice to participants. the most common offering is one-on-one in-person meetings (93.6%). An average of 21.6% of participants utilized investment advice when it was offered.

An average of 27 funds for employer contributions were offered by 403(b) plans in 2014, according to the study, and an average of 29 funds were offered for participant contributions. More than one-quarter of plans have 26 to 50 fund choices and 8.5% have more than 50 for participant contributions. “We are not seeing a decrease in the average number of funds offered. The average number has remained in the high 20s for the last several years,” Greenan says.

The majority of plans (78.8%) use mutual funds, and 56.7% use annuities. Nearly three-quarters (74.4%) offer target-date funds (TDFs) as investment options.Three-quarters of plans allow participants to transfer funds on a daily basis, while 15% permit monthly transfers. Fifteen percent of plan limit the number of transfers an employee may complete.

According to Friedman, there may be some older products that are still around in some plans that have transfer restrictions; however, with the rise of participant direction and 404(c), most investment types don’t have specific investment transfer restrictions, other than those put into place to curb excessive trading.  “More likely, trading restrictions are administrative and are put into place by the plan administrator for administrative ease. I note that it is smaller plans that show these restrictions,” he tells PLANSPONSOR.

PSCA’s 2015 403(b) Plan Survey reports on the 2014 plan-year experience of 478 not-for-profit organizations. More information is at www.psca.org.