401(k) plan participants saving more, taking out less

The educational efforts of plan sponsors appear to be paying off. Participation rates in workplace retirement plans have stayed fairly constant since 2008 “due to concerted education efforts of plan sponsors and providers that set up to educate investors to stay the course through the market fluctuations,” says Hattie Greenan, director of research and communication for the Plan Sponsor Council of America.

In its 58^th Annual Survey of Profit Sharing and 401(k) Plans, PSCA found that plan sponsor efforts in this arena really did keep people saving in their retirement plans.

“They may have decreased their savings rate due to economic conditions but we have seen a rebound to higher levels as people understand how plans work and realize they need to save more in their plans if they can,” she says.

Also see: “5 signs your employees are financially stressed.”

In 2015, lower-paid plan participants contributed an average of 5.8% of their salary into their 401(k) plan, while higher-paid participants contributed an average of 6.9% of their salary to their workplace retirement plan.

Plan sponsors are also re-examining their 401(k) plan deferral rates. Three percent has been the standard deferral rate for years but many companies are now choosing a higher deferral percentage, in the range of 5% to 6%.

Many companies are actually pushing 10% to 15%, Greenan says. “We are shifting higher, which is good news. We may see it hit 6% or higher in the next couple of years.”

Also see: “Best practices for retirement plan RFP success.”

The survey also found that there has been a decreased usage of plan loans over the past year. A very low percentage, 0.7% of all assets, has been withdrawn from workplace plans and the bulk of those loans are being repaid, Greenan says.

“We’ve always been a proponent of plan loans as an incentive to participate in the plan. They know the money is available to them if they need it. It is their money and there in an emergency situation if they need it,” she says.

And while plan participants did take loans from their retirement plans during the downturn, that rate is going back down.

Also see: “Is your 401(k) loan program state-of-the-art?”

“The loans are functioning as intended: a safety net in emergency situations, and they are repaying those loans. They are not taking money out and abusing the system,” she says.

Another highlight of the survey was the increase in use by plan sponsors of mobile technology to communicate with a younger demographic of employees. Twenty-one percent of all plans and one-third of plans with more than 5,000 participants are using mobile technology to do everything from handle enrollments to making investment changes.

“I think it took a while for the industry to figure out how best to use the technology everyone is using,” says Greenan. “Now there are platforms for doing so, so we will see a pretty steep uptake in technology to reach plan participants in the next couple of years.”

Also see: “Retirement readiness metrics key to 401(k) plan success.”

As far as 401(k) plan design goes, more companies are offering Roth options and automatic features, such as auto enrollment and auto escalation. The increase in 2015 wasn’t quite as dramatic as in previous years, but those numbers are still increasing.