Participants in 401(k) and profit-sharing plans raised their annual savings rate to 6.8% of pay last year, up from 6.4% in 2011 and 6.2% in 2010, according to the latest annual survey of sponsors by the Plan Sponsor Council of America.
“The reports of the demise of the defined contribution system are exaggerated,” Robert Benish, executive director and interim president of PSCA, said in an interview. “Sponsors are making it easier for employees to save through improvements in plan design.”
PSCA's annual survey, released Thursday, also reported the average company contribution was 4.5% of pay for 2012, compared with 4.2% in 2011 and 3.7% in 2010.
“Companies are feeling better,” said Mr. Benish, in describing why he thought contributions have risen. “The recession is in the past. There's still uncertainty about (the cost of) health care. We'll have to see what will happen going forward. We're still not sure.”
One indication of improving confidence, Mr. Benish added, was a rising rate of employers making matching contributions among the 686 plan executives who responded to the survey. Last year, 95.3% of plans made matching contributions vs. 95.1% in 2011, 89% in 2010 and 85.2% in 2009, he said.
The latest PSCA survey found 47.2% of plans used auto enrollment last year, and about 90% of those plans with auto enrollment use it only for new employees, according to a report on the survey results. The report also said 51.8% of plans use a 3% default deferral rate, while 35.2% use 4% or greater, and 12.9% use 2% or less.
Although 3% is an unofficial deferral guideline among DC plans, Mr. Benish said he was encouraged by the higher rates. “Three percent was never intended to be the standard,” he said. “We're starting to see people saying you need more than 3%. Sponsors had feared a pushback (from participants), but as they started increasing (the default deferral rate) they haven't seen the pushback.”
The PSCA survey covered plans with $769 billion in assets serving 10.3 million participants. Forty-four percent of the plans had assets of $100 million or more and 23% of plans had more than 5,000 participants.
