Small-business defined contribu- tion plans are on a roll, according to a recent Vanguard report. The
number of plans increased from 1,418
in 2013 to 8,873 last year, and the number of participants increased six-fold to
370,414 over that period.
The new report assessed plan design
trends and participant savings behaviors
in small-business 401(k) plans supported by Vanguard Retirement Plan Access,
a service launched in 2011 to provide
small-business owners with a 401(k)
solution for their employees.
Besides increased coverage, Vanguard
reported that more small-business plans
were adopting plan features that could
lead to improved retirement readiness
for their employees.
According to the report, nearly two-thirds of all eligible employees participated in their small-business 401(k)
plan in 2017, with participation rates
varying depending on income and age.
For employees subjected to automatic enrollment, participation rates were
higher across all demographic variables:
83%, compared with 58% for plans with
The report said that with both
employee and employer contributions
taken into account, the average participant contribution rate was 9.7% in 2017,
up from 9.3% the year before.
Deferral rates increased with job tenure and age — from 5.2% for employees
25 and younger to 10.6% for those 65
Ninety-six percent of plans offered
target-date funds as the qualified default
investment alternative, according to the
report. More than two-thirds of participants used TDFs and 59% were invested
in a single TDF.
Eight in 10 plans offered a Roth feature, whereby contributions are post-tax, enabling savings to grow tax-free,
according to the report — a potential boon for participants currently in
a lower tax bracket, such as younger
employees whose tax liabilities are likely
to increase with age and higher earnings.
The report said nearly 100% of plans
offered eligible participants the ability
to make catch-up contributions.
DEFERRAL RATE REACHES ALL
In the same vein, T. Rowe Price found
the average employee pretax deferral
rate reached 8.3% in 2017 — the highest
in the 10 years the firm has been reporting participant data.
T. Rowe Price’s 10th annual benchmarking report on 401(k) participant
data, Reference Point, is based on the
firm’s full-service recordkeeping client
data for 2017. Data are based on the universe of T. Rowe Price Retirement Plan
Services retirement plans — 401(k) and
457 plans — which consists of 636 plans
and more than 1. 6 million participants.
401(k) Participation Surges at Small
Businesses and Deferral Rates Rise
Also, many millennials lack a plan, and one firm shows employees how to
curb health costs to help retirement savings.
By Editorial Staff