Retirement Delayed Despite Participation in 401(k) and 403(b) Plans

The workforce participation rate for those 65 years and older is higher than 20% for the first time in 50 years.

The workforce participation rate for those 65 years and older is higher than 20% for the first time in 50 years. Reasons given for delaying retirement are a preference to work longer, the need to keep health care coverage and unmet financial needs.

A survey of 240 retirement plan sponsors in 2019 found that participation in both 401(k) and 403(b) accounts was 84% among the employees, with the median average account balance being $105,000. These metrics are seen by the financial services industry as benchmarks of plan performance and how employers are encouraging their workers to take advantage of defined-contribution plans.

Another trend in the survey was higher default auto-enrollment and annual deferral percentages, which show that more employees are contributing to their retirement plans. The percentage of retirement plans with default contribution rates of 5% or more of salary rose to 48% compared to 38% in 2017. Highly compensated employees contributed, on average, 7.8% of their income annually while those not highly compensated contributed 6.2% annually.

The reasons cited in the survey for increased plan participation and contributions were employer match programs and simplified investment options for those participating. Roughly 92% of plan sponsors offered some form of matching/profit-sharing, and 67% of plan sponsors offered an “autopilot” program (defined as automatic enrollment, step-up or auto-escalation features and managed accounts). Among investment options offered, the most common were general/core bonds, actively managed global/international equities, actively managed domestic equities, passively managed domestic equities and stable value/guaranteed investment contracts.

Meanwhile, fees to administer these plans have increasingly been charged directly to participants by the recordkeeper, with 52% of sponsors describing this as the main mode of fee payment. The researchers recommend that plan sponsors should work to reduce fees to plan sponsor, offer investment options with lower fees and/or better performance, add and enhance website and tools, improve participant experience and improve participant retirement readiness in order to better serve aging workers’ retirement needs.

Source: “The Retirement Landscape Has Changed—Are Plan Sponsors Ready? 2019 Defined Contribution Benchmarking Survey Report,” by Stacy Sandler, Cheryl Ouellette, and Scott Manson; Deloitte, 2019.