DC Plans Hold $7.3 Trillion in Assets

The Investment Company Institute has issued a report, “Ten Important Facts About 401(k) Plans.”

At the end of the first quarter of 2017, Americans held $7.3 trillion in defined contribution (DC) plans, accounting for 28% of the $26.1 trillion in retirement assets, according to a report from the Investment Company Institute (ICI), “Ten Important Facts About 401(k) Plans.”

At year-end 2015, 38% of 401(k) participants were under the age of 40. Twenty-five percent were in their forties, 26% were in their fifties, and 11% were in their sixties.

Fifty-one percent of U.S. households owning DC accounts in mid-2016 had incomes between $25,000 and $99,000. Forty-four percent had incomes of $100,000 or more, and 5% had incomes of less than $25,000.

Ninety-one percent of 401(k) participants said that payroll deduction makes it easier to save, and 90% said owning a DC account helps them to think about their long-term needs. Eighty percent said that the tax treatment of their DC plan is a big incentive to save, and 81% said that their plan offers them good investment options.

Eighty-nine percent of participants receive matches from their company. While this is only 63% in plans with less than $1 million in assets, the incidence of company matches rises as assets rise, to as much as 96% of plans with more than $100 million in assets.

Balances in 401(k) plans rise with participant age and job tenure. For example, the average account balance of participants in their sixties with up to two years of tenure was $37,976, but $280,976 for participants in their sixties with more than 30 years of tenure. Similarly, the average account balance of participants in their forties with up to two years of tenure was $19,088, compared with $158,182 for participants in their forties with more than 20 years of tenure.

Domestic equity funds, international equity funds and domestic bond funds were the most likely investment options to be offered in 401(k) plans. Just over three-quarters, 75.5%, of plans offer target-date funds (TDFs).

At year-end 2014, 43.1% of 401(k) plan participants’ account balances were invested in equity funds. Following that, 19.8% were invested in TDFs, and 8.1% in bond funds.

In 2016, the average expense ratio for equity mutual funds offered in the U.S. was 1.28%; however, in 401(k) plans, the average expense ratio for equity mutual funds was just 0.48%.

Finally, at year-end 2015, only 16% of participants had a 401(k) loan outstanding.

ICI’s full report on the 10 important facts can be downloaded here.

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Employees Want a Better Open Enrollment Experience

A survey reveals issues employees have with open enrollment season.

With skyrocketing health care costs, it’s not surprising that most employees value quality health care as part of an effective and lucrative benefits package. A survey by Namely, a human resources platform focusing on mid-sized employers, found that employees are even willing to sacrifice perks many companies thought were “must-haves” in exchange for better health care benefits.

However, they were less inclined to give up 401(k) matches (5%). This suggests a majority of employees find value in benefits packages that allow their employers to help them maintain physical and financial wellness.

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The same survey also revealed some key findings about how employees prefer to be introduced to their benefits options during open enrollment season. It also showed employers have room for improvement in this realm.

According to the survey, 36% of respondents gave their companies a “C” grade or lower when it comes to open enrollment. Only 27% gave their employers an “A”, and most (57%) said their companies prepared them “pretty well” to understand their benefits offerings.

The biggest issues employees had with open enrollment season were frequent changes in plans (34%), material that’s hard to understand (19%), and the rushed process (19%). Millennials were especially frustrated with complex jargon in enrollment material, and Baby Boomers were particularly daunted by the lack of time they were given to choose the right benefits.

Across all age groups, the firm found that one month was the most desired time frame for open enrollment, with 34% of survey takers choosing it. Only 17% preferred a week, and a mere 1% preferred a day.

Suggestions for improving open enrollment

Namely notes, “With this in mind, be sure to start your open enrollment preparations far in advance to give employees the time they need to understand their selections. Make sure your communication strategy supports your open enrollment time-frame with initiatives like weekly email reminders, Q&A sessions, and informational materials around plan offerings.”

To simplify the process, the firm suggests HR departments should “avoid the use of jargon in informational resources, and start the process early to ensure employees have ample time to ask questions and make thoughtful selections.”

Namely is also looking to improve its open enrollment services with the addition of Matthew Monahan, the new vice president of Benefits. He joins the firm after spending more than a decade at Aetna. Namely is also aiming to support 2018 benefits decisions with the launch of its updated enrollment wizard. This solution allows employees to make their selections, while viewing side-by-side comparisons. It also breaks down complicated jargon and allows users to learn at their own pace.

“Employees want great benefits choices, ample time to make their selections, and a knowledgeable HR representative,” says Monahan. “Namely’s new open enrollment technology delivers all three. I’m thrilled to join Namely to continue helping mid-sized companies maximize the return on their benefits spend.”

The survey report may be downloaded from here.

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