Plan Design, Flexibility Outpace Employer Contributions Among Plan Sponsors’ Priorities

Beyond enhancing retirement benefits and 401(k) matching contributions for employees, plan sponsors are adopting a heightened focus on improving the holistic financial well-being of participants, according to a new survey by Willis Towers Watson.

The 2024 WTW U.S. DC Survey, which included responses from 483 U.S. defined contribution plan sponsors, found that only 12% of employers are looking to increase their DC contributions over the next two years.

According to WTW, while the median employer contribution remains approximately 7.1% of pay, the median has declined over the past two decades from 11.4% in 2000 to 9.5% in 2010 to 7.4% in 2020. 

David Amendola, the intellectual capital and innovation leader at WTW, noted that the organizations in the survey that offer lower contributions—less than the median amount—were the ones saying they plan to increase contributions over the next two years.

“What we’re seeing is that overall retirement benefits have kind of normalized over the last 20 years, so things have sort of drifted toward this medium,” Amendola says. “I think a bunch of employers have spent money and increased their level of contributions to try to keep up with their peers. … But the organizations that are typically at the median [contribution rate] and above [are] not necessarily looking to [increase contributions].”

Employers that self-identified as “market leaders” in the survey were typically those with more ambitious objectives for retirement programs and the most likely to offer generous benefits. For example, market leaders said they typically provide contributions of 7.5% of pay to their workers, as opposed to 5.5% of those that self-identified as “market standard” plan sponsors.

“I think [some] employers just don’t have the [money] to increase their contribution level,” Amendola says. “Different employers have different ways of looking at their plan and want to diversify their design and the way that they structure their plan.”

Amendola says optional provisions available under the SECURE 2.0 Act of 2022 provide an opportunity for employers to “diversify their design.”

For example, 42% of plan sponsors said they are looking to add matching contributions for student loan repayments to their plans, and 35% said they are looking to add in-plan emergency savings. In addition, 26% of plan sponsors said they are looking at adding in-plan lifetime income or annuity options.

According to Amendola, many recordkeepers are prepared to implement the student loan matching provision, but pension-linked emergency savings accounts are still limited by recordkeeper uptake.

“There’s still a lot of uncertainty with or lack of clarity in terms of how [pension-lined emergency savings] accounts work and the rules around them,” he says. “So even though employers are really interested in emergency savings, I’m not sure where the in-plan PLESAs are going to shake out over the next couple of years.”

WTW also recently helped one of its plan sponsor clients obtain a private letter ruling from the IRS that enables that company’s employees to elect where they would like to allocate their employer’s nonelective contributions. Under the PLR, employees are able to allocate the funds to their 401(k) plan, a retiree health reimbursement arrangement, an educational assistance program or their health savings account.

Plan sponsors in the survey expressed interest in adding a similar program to their plans if there were no legal barriers. Amendola says WTW is now working with several clients to help them figure out how to implement a similar design to their plans.

“It’s indicative of this concept that a certain level of employers are really looking at their plans as possibly a broader financial health vehicle,” Amendola says. “I think we’re going to see that percentage continue to tick up as employers start to implement these types of programs and start to think about how they can expand on them.”