The participation rate in state and local government defined contribution plans was 26% last year, unchanged from 2011, according to a survey by the National Association of Government Defined Contribution Administrators.
“It is a bit surprising that it's unchanged, and we'd obviously like to see participation increase,” Lori Lucas, executive vice president and defined contribution practice leader for Callan Associates, wrote in an e-mail. “But most public DC plans continue to be viewed as supplemental savings plans, which is quite different from the corporate DC environment.”
Ms. Lucas, a member of the NAGDCA survey committee, pointed out that “50% of respondents reported that significant benefit reductions were recently implemented or are planned for their defined benefit plan. This makes participation in the DC plan all the more important for those workers.”
The survey covered 137 plans, primarily 457 plans but also 401(a), 403(b) and 401(k) plans.
Nearly 70% of the plans offer more than 16 core funds, according to the survey that is posted on the NAGDCA website.
The survey found that investment menus with 16 to 20 core funds were the most prevalent, having been cited by 32.7% of plan executives. Another 20.6% reported having 21 to 30 core funds; 9.3% said their plans offered 31 to 50 funds; and 6.5% offer more than 50.
In addition, 23.4% of plans had 10 to 15 funds and 7.5% had fewer than 10, the survey said.
“There can be several 'ideal' number of funds depending on who you talk to,” Thomas Mueller, NAGDCA's president, wrote in an e-mail. “However, statistics I have read and seminars I have attended all indicate that too many funds is confusing to participants.”
Still, 76% of all plan executives said their participants on average use five or fewer of the available funds.
Among other results, the survey said:
- Self-directed brokerage accounts were offered by 60.4% of plans; however, 91% of these plans said these accounts were used by 1% to 5% of participants;
- Target-date funds were the most popular default option (52.8%), while 28.3% of plans had no default option; and
- Only 8% of plans offer auto enrollment. The top reasons for not offering this feature were prohibition by state law (46.7%) and a belief that this isn't desired or needed (46.7%). Among plans not offering auto enrollment, 13.3% of executives said they are thinking about it.