Big Boost in 403b Auto-Deferrals, But What About Auto-Enrollment?

Addition of these features helps participants boost retirement readiness in practical, customized ways

403b, auto-enrollment, retirementAuto features are good, but are they good enough?

Our better and more altruistic non-profit counterparts are reaping the benefits of auto-everything in their 403bs.

The ninth annual Plan Sponsor Council of America benchmarking survey released last week finds the percentage of plans with a default deferral rate of more than 3 percent increased from 21.6 percent to 34 percent.

In addition, organizations saw average employer contributions increase to 5 percent, up from 4.7 percent in 2015.

However, while automatic enrollment in 403b plans continues to slowly increase, it remains low overall at 21 percent of plans (up from 19 percent in 2016 and 16.2 percent in 2014).

“Over the past several years, the PSCA survey has shown a steady increase in the use of automation and plan design enhancements,” said Aaron Friedman, national practice leader with Principal, which funded the study. “Automation is leading to greater plan enrollment, deferral rate escalation and employee contributions. The addition of these features tangibly helps participants boost retirement readiness in practical and customized ways.”

Additional Auto-Features Results:

  • Automatic Escalation: More than half (52 percent) of 403b plans that use automatic enrollment automatically increase the deferral rate over time, up from 43 percent in 2015.
  • Default Deferral Percentages: The percentage of plans with a default deferral rate less than 3 percent dropped in half, while the percentage with a deferral rate of more than 3 percent increased from 21.6 percent to 34 percent.
  • Default Options: Organizations are shifting from a use of Money Market Funds (down to 9.8 percent of plans) to target-date funds (up to 65.8 percent of plans) as the default investment option for participants that enroll in the plan but don’t choose an option.

“Retirement readiness represents an important area of focus for financial advisors and 403b plan sponsors to help their organization and employees,” Friedman added.

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