A survey conducted by Harris Poll on behalf of Nationwide, an insurance and financial services organization, found that because of the enactment of the Affordable Care Act (ACA), small business owners are increasingly reconsidering retirement plans in order to retain and recruit employees.
The Small Business Owner Study, organized in June 2016, surveyed 502 U.S. small business owners of companies with under 300 employees. The poll revealed that 29% of these owners will raise contributions to 401(k) plans because the ACA has made health benefits less attractive to employees—an attitude that was implemented after the ACA’s establishment—and 43% will do so based on the importance of appealing to and maintaining employees as a result of the Act.
“The changing health care marketplace has created an opportunity for business owners to increase investment in retirement benefits offered to employees,” says John Carter, president of Nationwide’s retirement plans business. “Business owners who help their employees prepare for retirement can differentiate their business as a destination for top talent and a place where valuable workers want to stay.”
Additionally, Carter says that American workers need great assistance in planning for retirement. The survey found that 86% of small business owners believe employees currently face a retirement readiness crisis. A noteworthy number, since according to the U.S. Small Business Administration, small businesses with 500 or less employees amount to 99.7% of all employers, employ almost 50% of private-sector workers (48.5%) and develop 63% of new private-sector jobs in the U.S.
The survey reported that 19% of business owners who do not currently offer a 401(k) plan will prepare to in the future, with 23% of that number doing so as an effort to appeal and keep employees in light of the ACA.—Amanda Umpierrez
More than one-third of 401(k) plan participants are under 40, most receive plan contributions from their employers, and equities figure prominently in 401(k) plans, says a new report from ICI.
The Investment Company Institute
(ICI) with data from the Employee Benefits Research Institute (EBRI) recently
published a new report highlighting 10 insights on 401(k) plans. Drawing from
the organizations’ combined database, “10 Important Facts About 401(k) Plans”
focuses on 401(k) balances, fund diversification and participant demographics
among other topics.
1) 410 (k) Plans Hold the Largest Share of DC Plan Assets
Sixty-nine percent of defined contribution (DC) plan assets were held in 401(k) plans amounting to $4.7 trillion at the end of 2015, according to the Investment Company Institute (ICI). 403(b) plans held $.9 trillion in assets. The total amount held in defined contribution plans was $6.7 trillion, and total retirement assets in the U.S. accounted for $24 trillion, the firm found.
2) More Than One-Third of 401(k) Plan Participants Are Younger Than 40
At year-end 2014, 37% of 401(k) participants were in their 20s or 30s, 26% were in their 40s, 26% were in their 50s, and 11% were in their 60s, the ICI found. 401(k) plan participants are slightly older than the broad population of private-sector workers, according to the report.
3) Households From All Income Groups Hold DC Plan Accounts
Fifty-three percent of U.S. households that own a defined contribution plan account have incomes ranging from $25,000 through $99,999. Forty-one percent reported incomes of more than $100,000, while 6% had incomes less than $25,000.
4) Households Appreciate the Tax Treatment and Investment Features of Their DC Plans
Eighty-one percent of households with DC plan account-holders agreed that “the tax treatment of my retirement plan is a big incentive to contribute,” ICI found. Ninety-one percent of such account holders said their retirement accounts allow them to “think about the long term, not just my current needs.” The same percentage said, “payroll deduction makes it easier for me to save.”
5) Most 401(k) Plan Participants Receive Contributions From Their Employers
Seventy-six percent of 401(k) plans received employer contributions in 2013, according to the ICI. The firm reports that “because larger 401(k) plans are more likely to have employer contributions, 88% of 401(k) plan participants were in plans with such contributions.”
NEXT: 401(k) Account Balances
Rise With Participant Age and Length of Time on the Job
6) 401(k) Account Balances
Rise With Participant Age and Length of Time on the Job
The average account balance of participants in their 60s
with up to two years of tenure was $34,673, compared with $274,043 for
participants in their 60s with more than 30 years of tenure. Similarly, ICI found, the average account balance of participants in their 40s with up
to two years of tenure was $19,697, compared with $159,118 for those in
their 40s with more than 20 years’ tenure.
7) 401(k) Plans Offer
Participants a Wide Array of Investment Options
The most common investment options to be offered with 401(k)
plans were equity funds, with 13 of these funds on average being offered, ICI found. Ten on average were domestic equity funds, and three were international
equity funds. Target-date funds (TDFs) were the next most common option, with
an average of nine funds being offered among plans that include TDFs.
In 2013, nearly all plans offered domestic equity funds,
international equity funds and domestic bond funds, which may be mutual funds,
collective investment trusts (CITs), separate accounts or other pooled investment
products.
8) Equities Figure
Prominently in 401(k) Plans, and Younger Plan Participants Are Highly Engaged in
Equity Investing
At year-end 2014, 43.2% of 401(k) plan participants’ account
balances were invested in equity funds, ICI found. Another 18% of assets were
invested in TDFs. Nearly half of all 401(k) plan participants had invested at
least some of their accounts in TDFs. In total, equity securities—equity funds,
the equity portion of balanced funds, and company stock—represented 66.2% of
401(k) plan participants’ assets.
More 401(k) plan participants held equities at year-end 2014
than year-end 2007, particularly younger participants. This same group was more
likely to hold equities and high concentrations in equities at year-end 2014
than year-end 2007, according to ICI.
The firm reports three-quarters of 401(k) plan participants
in their 20s had over 80% of their account balances invested
in equities at year-end 2014, compared with less than half at year-end 2007. Only 8% of the youngest participants held no equities at
year-end 2014 compared with 19% at year-end 2007.
9) 401(k) Plan
Participants Have Concentrated Their Assets in Lower-Cost Funds
At year-end 2015, 60% of 401(k) plan assets were invested in
mutual funds, mainly equity mutual funds, according to ICI. In 2015, the
simple average expense ratio for equity mutual funds offered in the U.S. was 1.31%. However, ICI notes, when taking into account both the
funds offered in 401(k) plans and the distribution of assets in those funds,
401(k) plan participants who invested in equity mutual funds paid less than
half that amount or 53% percent on average.
10) Less Than One in
Five 401(k) Plan Participants Have Loans Outstanding
Fifty-four percent of 401(k) plans offered plan loan
provisions to participants, according to the EBRI/ICI database. ICI also
reports that 87% of participants were in plans offering loans. Factoring in
all 401(k) participants with and without loan access in the database, however, only
17% had loans outstanding at year-end 2014.