T. Rowe Price Finds Significant Increase Of Plan Sponsors Offering Roth Contributions in 401(k) Plans
NEWS
This new finding comes from
AUTO-SOLUTIONS TRENDS
Adoption of auto-solutions has been on the rise since the Pension Protection Act of 2006, and it continues to be a successful tool for plan sponsors to use within their plans. Of the
- The number of plans with a 6% default deferral rate or more has doubled since 2011, with 33% of plans offering this higher rate in 2016. The industry standard for the past 10 years has been 3%.
- The percentage of plans adopting auto-increase of participant contributions and auto-enrollment has significantly grown in the last five years. The percentage of plans adopting auto-increase grew from 63.3% in 2011 to 71.5% in 2016. Similarly, auto-enrollment increased from 39.8% in 2011 to 54.5% in 2016.
- Participation rates continue to be strongly tied to the adoption of auto-enrollment, with participation 42 percentage points higher in plans with auto-enrollment than those without it.
CONTRIBUTION TRENDS
Pretax deferral rates continued to increase in 2016 and now stand at 8%, the highest rate since before the financial crisis. Likely factors contributing to this increase include plan sponsors raising the default deferral rate for their plans and improved market conditions.
INVESTMENT TRENDS
Plan adoption of target date portfolios continued to rise. In 2016, 93% of plans at
LOAN AND DISBURSEMENT TRENDS
Loans are a staple of the retirement plan feature but can derail a participant's future savings if not utilized properly. The percentage of participants with loans at the end of 2016 is down marginally to 23.8%, which is the lowest since the height of the financial crisis in early 2009.
- The ratio of direct rollovers to cash-outs continued to strengthen, with rollovers increasing to 81% in 2016, compared with 71% in 2009, and cash-outs decreasing to 19% in 2016, compared with 29% in 2009.
- Hardship withdrawals declined, with only 1.4% of participants in plans at
T. Rowe Price taking such a withdrawal, compared with the 2% industry average.
QUOTE
"It's encouraging to see that so many of our plan sponsors are continuing to take steps to prepare their plan participants for retirement. An important demonstration of this is the 10 percentage point increase we saw in 2016 in the number of plan sponsors who offer Roth contributions in their 401(k)s. Roth contributions in 401(k)s offer important benefits to participants, including the ability to diversify the tax treatment of retirement income. Providing this option, as well as the education around its benefits, reflects plan sponsors' commitment to the successful retirement outcomes for their participants."
"We are continuing to see a favorable turn in participants' financial behaviors in 2016. The percentage of participants taking out a loan is down slightly and is at its lowest since 2009. We also saw a strengthening ratio of rollovers to cash-outs. We believe that educating participants on their retirement savings plan has had a direct, positive effect on reducing plan leakage and has dissuaded more people from using their savings for nonretirement purposes."
REFERENCE POINT METHODOLOGY
Data are based on the large-market, full-service recordkeeping universe of
For plan-level analysis (i.e., averages by industry), a plan-weighted average is shown. This process takes the average from each plan and averages them together. A plan-weighted average assigns plans with a smaller number of participants the same weight as plans with a larger number of participants.
For participant-level analysis (i.e., averages by age and tenure), a participant-weighted average is shown. This process adds up all participants for all plans and takes one overall average. A participant weighted average assigns plans with a smaller number of participants less weight than plans with a larger number of participants.
Data and analysis cover the time periods spanning calendar years ended
Auto-increase and auto-enrollment data are based on plans that are eligible to receive this service. Loan availability and usage results are based on active participants with outstanding balances.
ABOUT
ABOUT
Founded in 1937,
To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/t-rowe-price-finds-significant-increase-of-plan-sponsors-offering-roth-contributions-in-401k-plans-300479526.html
SOURCE
News Provided by Acquire Media