Many plan sponsors want to know how their 401k plan stacks up to the typical or average plan. This is often the first question asked when attempting to determine whether an effort should be made to upgrade the features and benefits of the plan.
To help you answer this question, we have identified the common features offered by most 401k plans and compiled statistics from a variety of sources that will allow you to benchmark your plan.
Eligibility2
How quickly do employers allow new employees to join their 401k?
| Immediate (one month or less) | 37.2% |
| 3 months or 90 days | 12.6% |
| 6 months or 1000 hours | 15.4% |
| 1 year | 28.9% |
| Other | 5.9% |
Employee Contribution Levels3
Pre-tax deferrals averaged 5.2% of pay for lower-paid and 6.3% of pay for higher-paid employees.
Employer Contributions3
Seventy-five point five percent (75.5%) of companies match employee contributions.4
The average company contribution was 4.1% of payroll. Company contributions were highest in profit sharing plans (8.8% of payroll) and lowest in 401k plans (2.8% of payroll). Company contributions averaged 25.6% of total net profit for profit sharing plans and 11.3% of total net profit for 401k plans.
Numerous formulas are utilized to determine company contributions. In plans permitting participant contributions, the most common formula is a fixed match only, present in 25.7% of plans (including plans with safe harbor matches). The most common type of fixed match is $.50 per $1.00 up to the first 6% of pay, present in 27.9% of plans that have fixed matches. The most common type of company contribution for profit sharing plans is a discretionary profit sharing contribution only, which is present in 75.7% of plans.
Matching contributions are most frequently made on a payroll period basis (56.5% of plans), while non-matching contributions are most often made annually (67.4% of plans).
Employee Participation Rate
Eighty point three percent (80.3%) of eligible employees held balances in their 401k plans.3 But, overall participation rates are falling. According to data released in the Census Bureau's Current Population Survey (CPS), both the number of workers in the private sector whose employer sponsored a retirement plan and the number of workers who participated in such plans fell again in 2002. The CPS data show that among workers in the private sector between the ages of 25 and 64 who were employed full-time, the number whose employer sponsored a retirement plan fell from 45.1 million in 2001 to 42.8 million in 2002. The number of these workers who participated in an employer-sponsored retirement plan fell from 38.7 million in 2001 to 37.0 million in 2002. The percentage of 25 to 64-year-old, full-time employees in the private sector who participated in an employer-sponsored retirement plan fell from 55.8% in 2001 to 53.5% in 2002.7
Why do Employee Participate in Their 401k?1
The vast majority of 401k plan participants enrolled in their current plans to save for retirement. In addition, the vast majority indicated that participation in the 401k plan led them to save more for retirement than they would have otherwise. A large number of participants expected their 401k plan assets to be their main source of income in retirement.
Company match, tax deferral, and payroll deduction features also were important in the decision to participate.
Workers choosing not to join their employers' 401k plans primarily cited financial constraints as the reason for nonparticipation. Many of these workers said they did not have the extra money to save and expected to rely upon other resources, including employment, for income in retirement. The vast majority of nonparticipants said they would be likely to join the 401k plan if the employer matching contribution were increased or if they had higher salaries.
| Most Frequently Mentioned Reasons for Participating and Not Participating in 401k Plans (based upon percent of respondents citing reason,in descending order) | |
| Reasons for Participating | Reasons for Not Participating |
| 1. Concern about funding retirement | 1. No extra money to save |
| 2. Company match | 2. Saving for retirement in some other way |
| 3. Tax-deferred status of contributions | 3. Dislike plan features |
| 4. Payroll deduction feature | 4. Confused about plan features |
Investment Options3 Eighty point eight percent (80.8%) of plans offered 10 or more fund options for participant contributions.
On average, 14 funds were available for company contributions and 15 funds were available for participant contributions.
The most commonly offered fund options for participant contributions were actively managed domestic equity funds (present in 78.7% of plans), balanced stock/bond funds (72.9% of plans), actively managed international equity funds (72.6% of plans), and indexed domestic equity funds (66.0% of plans).
Company stock is offered in 12.1% of plans.4
How Frequently Are Participants Allowed to Make Changes?
Allowed to Change Their Contribution Rate:1
Allowed to Change Their Asset Allocation:1
Loans5
Fifty-one percent (51%) of 401k plans, accounting for 82 percent of all participants, offer loans to plan participants. The probability of a plan offering plan loans to its employees increases with plan size with 92% of plans with more than 10,000 participants include a loan provision, compared with 35% of plans with 10 or fewer participants.
In plans that permit loans, on average 17% of participants have them, averaging $6,659 per borrower.
Reasons plans permit loans:6
Vesting Schedules3
Hardship Withdrawals1
Most 401k plans offer hardship withdrawals, but just 4 percent of participants take such a withdrawal. Forty-five percent made hardship withdrawal to purchase a home; 28 percent, to pay for a medical emergency; 21 percent, to pay bills or daily expenses; and 7 percent, to pay college tuition.
Automatic Enrollment
Eighteen percent (18%) of plans surveyed have automatic enrollment. It is most popular with plans that have more than $500mm in assets (30.9%) and least common in plans with between $5mm and $49mm in assets (0.8%).4 The most common default deferral percentage is 3% of pay, present in 55.4% of plans.3
Internet Access4
Over 98.7% of plans permit participants to make some type of transaction via the Internet. The most common Internet services available to participants are:
Investment Advice
Investment advice is offered in 43.5% of plans.4 It is most prevalent in small companies (59.7%) and least prevalent in large companies (34.5%). The most common types of advice offered are one on one counseling (55.2%), Internet providers (50.2%) and telephone hot lines (31.9%).3
Who pays for the advice? In 15.9% of the plans it is paid for by the plan participants, in 61.7% it is paid for by the plan sponsor, and in 13.2% of the plans it is a shared expense.4
Self-directed Brokerage Accounts4
Twenty-two point one percentage (22.1%) of plans offer self-directed brokerage accounts.
Investment Policy Statement4
Sixty-seven point three percentage (67.3%) of plans have a written investment policy statement.
Use of Consultant4
Thirty-eight point two percentage (38.2%) of plans use a consultant that is separate from the plan provider.
Sources
1. "401k Plan Participants: Characteristics, Contributions, and Account Activity," Published By: Investment Company Institute.
Every day
28%
Every pay period
3%
Once a month
9%
Once every three months (Quarterly)
19%
Twice a year (biannually)
15%
Once a year
13%
Other
13%
Every day
44%
Every pay period
1%
Once a month
8%
Once every three months (Quarterly)
16%
Twice a year (biannually)
8%
Once a year
9%
Other
14%
Home Purchase
95%
Education Expenses
92%
Medical Expenses
86%
Financial Hardship
65%
Home Improvement
43%
Automobile Purchase
16%
Other
08%
Immediate
33.7%
Cliff
18.9%
Graduated
43.8%
Other
3.6%
Account balance lookup
96.9%
Transfers/re-allocation
93.8%
Savings calculators
72.5%
Loan modeling
66.6%
Deferral changes
53.9%
Loan distribution
52.8%
Financial advice
43.5%
Online enrollment
39.9%
Self-directed brokerage
17.5%
2. "401k and Profit Sharing Plan Eligibility Survey 2003," Published By: Profit Sharing/401k Council of America.
3. "46th Annual Survey of Profit Sharing and 401k Plans," Published By: Profit Sharing/401k Council of America.
4. "2003 Defined Contribution Survey," Published By: Plansponsor.com.
5. "401k Plan Asset Allocation, Account Balances, and Loan Activity in 2002," Published By: Employee Benefit Research Institute.
6. "Plan Loan Restrictions - Reasons Plans Permit Loans," Published By: Profit Sharing/401k Council of America.
7. "An Alarming Fall in Retirement Plan Participation," Published By: 401khelpcenter.com, LLC.