403(b) Plans Reach Record Participation Rates in 2022

Participation rates in 403(b) plans hit an all-time high in 2022, according to the Plan Sponsor Council of America’s 2023 403(b) Survey. 

The survey, sponsored by Hub International and Principal Financial Group, gathered information from 250 nonprofit organizations that sponsor 403(b) plans for employees and revealed 80% of eligible employees contributed to their plans in 2022, up slightly from the year prior.  

The majority of the plans surveyed (72.2%) are governed by ERISA, 19.8% are non-ERISA plans and the remainder responded that they do not know their ERISA status. 

The average account balance for active and inactive plan participants was $90,511. 

An average of 83.1% of eligible active employees have a balance in their plan, nearly identical to the year before. Nearly one-third of total plan balances belong to terminated vested employees. 

In addition, nearly 20% of eligible participants made catch-up contributions in 2022. Of those organizations that permit catch-up contributions, 42.5% match them. 

Increasing plan participation was a primary goal for 403(b) plan sponsors in 2022, as many said their plan education centered around this mission, as well as increasing financial literacy.  

Nonprofits also contributed an average an average of $6,322 per participant in 2022, rising from $4,887 in 2021according to the PSCA. 

The use of automatic enrollment jumped by nearly 20 percentage points in 2022 and is now used by 31.4% of plans, including nearly half of plans with at least 200 participants. The most common default deferral rate continues to be 3% of pay, as 37.5% of plans use this rate. Two-thirds of plans with automatic enrollment also automatically escalate the default deferral rate over time, up from 57% in 2021 and more than double the percentage that used this feature a decade ago. 

“Seeing it begin to take hold in the nonprofit space, especially as it is largely seen as a best practice in retirement plan administration, bodes well for the increased retirement security for those who dedicate their time to mission-focused organizations, often for less pay than in the corporate world,” said Hattie Greenan, the PSCA’s director of research and communications, in a press release. 

While more 403(b) plans allowed hardship withdrawals in 2022, only 0.6% of participants took a hardship withdrawal in 2022, down from 1.5% in 2022.  

The PSCA also observed a steady increase in plans adopting an investment policy statement over the last few years, with 63.3% of organizations reporting that they have one in 2022, up from 58.8% in 2021. Investments continued to most commonly be monitored on a quarterly basis. 

403(b) plan sponsors also offered more investment options in 2022, as plans provided access to an average of 24 funds for both organization and participant contributions, compared to an average of 23 funds in 2021 More than one-third of plans surveyed offered access to between 26 and 50 funds for participant contributions.  

The majority of plans (74.3%) offered mutual funds, and 42.1% included annuities. The PSCA found that 80% of plans offered target-date funds as an investment option.