Data and Research January 17, 2020

State of Membership Organizations/Industry Associations Retirement Plans

A look at the setup and features of these plans may offer a clue about how open MEPs sanctioned by the SECURE Act will look.

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Membership organizations/industry associations retirement plans rank No. 2 among all industries when it comes to average participant deferral rate (8.8%), according to the PLANSPONSOR 2019 Defined Contribution (DC) Survey. They also rank in the top 10 for average account balance ($118,376).

The PLANSPONSOR 2019 Defined Contribution (DC) Survey results incorporate the responses of 3,472 plan sponsors from a broad variety of U.S. industries. Within the survey, 52 respondents are from membership organizations/industry associations.

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Among membership organizations/industry associations, 86.5% offer a 401(k) plan and 15.4% offer a 403(b) plan. More than one-quarter (27.5%) offer a traditional defined benefit (DB) plan, and 3.9% offer a cash balance plan.

Now that the SECURE Act allows for multiple employer plans (MEPs) for employers that do not share a common nexus, the industry is wondering how those plans may be set up. This provision is effective January 1, 2021, and David Whaley, partner at Thompson Hine LLP in Cincinnati, Ohio, says he anticipates some MEPs will be sponsored on day one. “There are already pooled plans among trade associations. I think they will choose to treat themselves as open MEPs, now that the SECURE Act allows them to file a single Form 5500, and they will make modifications to be ready on January 1, 2021,” he says.

The 2019 PLANSPONSOR DC Survey finds that two-thirds (65.3%) of membership organizations/industry associations retirement plans are “safe harbor” plans. The average participation rate is 80.3%, compared to 78.9% for plans in the survey overall.

The most common service delivery model among membership organizations/industry associations retirement plans (44.9%) is a fully bundled arrangement—the same recordkeeper and trustee, and all of the investments are managed by the recordkeeper. Recordkeeper reviews are done annually by 65.2% of plans.

Fifty-seven percent of these plans employ the services of a financial/retirement plan adviser or institutional/investment consultant to specifically assist with plan design decisions, compared to 70.1% of plans in the survey overall. Investment advice is offered to participants in 81.8% of membership organizations/industry associations retirement plans—via financial advisers, a third-party or tools from recordkeepers.

Nearly 45% of membership organizations/industry associations retirement plans indicate they employe a third party as a 3(16) administration fiduciary. Sixty-two percent of these plans have an investment committee, and 79.6% have a written investment policy statement (IPS).

Only three in 10 membership organizations/industry associations retirement plans use automatic enrollment, compare to 48.2% of plans overall. For those that do use automatic enrollment, 80% use target-date funds (TDFs) for the default investment. The most common default deferral rates are 6% (26.7%) and 3% (20%).

Only 29.4% of membership organizations/industry associations retirement plans offer automatic deferral increases (auto escalation).

A profit sharing or other non-matching contribution is offered in 62.5% of membership organizations/industry associations retirement plans, compared to 48.4% of plans overall. A matching contribution is offered in three-quarters of plans, the same as for all plans in the survey. The most common match formula is 51% to 99% of the first 6% of salary, again, the same as for all plans.

The majority of membership organizations/industry associations retirement plans (88.4%) use mutual funds as investment choices in their DC plans, with only 20.9% using separate accounts and only 11.6% using collective investment trusts (CITs). The average number of investment options offered is 21.

One-third (34%) of membership organizations/industry associations retirement plans review investment options quarterly, and 31.9% do so annually. Ninety-three percent say they offer assistance for participants with creating retirement income—via systematic withdrawals, in-plan guaranteed insurance-based products, in-plan managed accounts or managed payout funds or out-of-plan annuity purchase/bidding services.

Two-thirds allow for Roth deferrals, 82.7% allow participants to take loans, and 80.4% allow hardship withdrawals.

PLANSPONSOR 2019 DC Survey industry reports may be purchased by contacting Brian O’Keefe at brian.okeefe@issmediasolutions.com.
Data and Research January 17, 2020

Few Retirees Receiving Income from the Three-Legged Stool

Only 6.8% receive income through Social Security, a defined benefit (DB) plan and a defined contribution (DC) plan, the NIRS found.

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The National Institute on Retirement Security (NIRS) issued a report examining the sources of retirement income for older Americans—finding that while many Americans rely on Social Security throughout retirement, only some are receiving the benefit.

According to the report, 40% of older American retirees rely only on Social Security income in retirement, while only 6.8% receive income through Social Security, a defined benefit (DB) plan and a defined contribution (DC) plan. The report found roughly the same number of older Americans will receive income from DB plans, as from DC plans. However, this is likely to change, as the American workforce steers away from pensions.

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“Future private-sector workers today have less access to defined benefit pensions, and so when they reach retirement age, they’re less likely to have any income from a DB plan,” stated Tyler Bond, NIRS manager of research, in a webinar about the report.

The report also emphasized key demographics and its relationship to retirement income. For example, unmarried older men and women receive retirement income from a combination of Social Security and DB and DC plans, but older unmarried men will consistently have higher incomes than unmarried women, an unsurprising detail considering the ongoing gender pay gap. These two groups tended to have smaller retirement incomes than married men and women, as multiple people in a household receive more income.

Additionally, the report found that both race and educational attainment have strong roles in establishing retirement income. Older white Americans received considerably more in Social Security income and total retirement income—at $23,292 for a median total retirement income figure and $14,760 in median Social Security amount. Older black Americans received a median total retirement income of $16,863 and a median Social Security Income figure of $13,320. Hispanics had the lowest median retirement income at $13,560, and the smallest Social Security income at $12,720—albeit having the highest percentage of those receiving Social Security benefits (45.9%). Almost 40% of white people are receiving these benefits, while 44.8% of black people are.

“The percentage is slightly higher for black people and Hispanics who are only receiving Social Security income in retirement, but you see that the median amounts are much closer together,” said Bond.

The report says those with a college degree will typically have significantly higher retirement incomes than those with only a high school education. “College graduates are more likely to have income from all three sources than those with just some college or those with only a high school education,” explained Bond.

The report also notes how sources of retirement income affect poverty status. For example, people receiving income from DB plans were found to have much greater poverty than those receiving income from DC plans. “One reason for this is that recipients of defined contribution income tend to have significantly higher net worth than recipients of defined benefit income,” said Bond.

The report concludes by stating that Social Security expansion can assist policymakers fighting elder poverty.

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