Retirement Plans Looking More ‘SECURE,’ 401(k) Benchmarks Show

The Setting Every Community Up for Enhance Retirement (SECURE) Act which was passed in the latter part of 2019, was designed to boost savings through 401(k) and similar retirement plans sponsored by employers. Plan data suggests that the law is on the right track to achieve this goal, as per the Plan Sponsor Council of America's (PSCA's) 64th Annual Survey of Profit-Sharing and 401(k) Plans report, which was released in December and basis its findings on the responses from 518 plans surveyed in 2021 about the prior plan year.

As a result of SECURE Act provisions allowing long-term part-time employees to join employer-sponsored plans, almost three-quarters of plans allow part-time employees who are salaried to join. As the survey revealed, more than 70% permit allow hourly part-time workers to join.

"We know, and see in the data, that when people have access to retirement savings plans at work, they use them," said Hattie Greenan, director of research and communications for the PSCA. "Expanding access to plans, as the SECURE Act did, is clearly creating more retirement savers."

Higher Savings Rates that default

Increased eligibility leads to more plan participants, with almost 90% of those eligible contributing towards the plans in 2020--a record for the survey, which is in its 64th year.

In addition, the plan designs are gradually moving past an automatic registration framework established by the Pension Protection Act of 2006:

• Automatic increases features. More than one-third (36.5 percent) of plans today automatically increase participants' salary deferral rate every year, unless the participant chooses to opt-out of the feature and limits auto-escalation increase to more than 10 percent of their pay (a SECURE Act provision increased the auto-escalation cap between 10 and 15 percent).
• Rates of default savings. The most popular default deferral rate is currently 6 percent of the pay, with 65 percent of plans with default rates higher than 3 percent. This could dramatically increase overall savings rates throughout.

"Plan design changes can be slow to take hold, but the pandemic appears to have accelerated the pace of change in dramatic fashion," said Nevin Adams, chief content officer and head of retirement research at the American Retirement Association. "It's encouraging to see a strong participant response to these enhanced plan designs--the combination is great news for the nation's retirement security."

Pandemic Punch

"The pandemic has created an environment that is shifting the way retirement plans are considered, designed and provided that may ultimately reshape plans in the long run," Greenan said.

The shift to working from home has changed the priorities of retirement education and the way that education is offered, the responses to surveys revealed.

For the first time, the primary purpose of providing education on the plan was to boost the overall financial literacy of employees (77 percent of the plans), replacing the previous goals of growing satisfaction with the plans and expanding participation.

Remote work has also has challenged traditional administration and educational methods, requiring dependence on technology. The use of email and mobile applications and webinars for education on plans is increasing dramatically, and more than two-thirds of companies are making use of mobile technology to facilitate access to plans and transactions.

"Unfortunately, there were a few negative indicators too," the PSCA reported and "the effects of the epidemic can be observed in the lower average company contributions, as well as a slight uptick in loans and withdrawals."

The company's average contribution reached to 4.9 percent of pay, it was still much more than it was just four years earlier, as the report found. In addition, over 90 percent of the plans today permit hardship withdrawals, which is likely due to the Coronavirus Aid, Relief, and Economic Security (CARES) Act enacted on March 20, 2020. just a tiny fraction--2.6 percent of participants -- took the option of a hardship withdrawal last year.