Contributions to 403(b) plans swooned amid the COVID-19 pandemic, according to the latest annual plan survey from the Plan Sponsor Council of America.
Employers contributed an average of 4.6% of worker paychecks to individual 403(b) retirement accounts in 2020, down from 6.3% in 2019 and 5.5% in 2018.
Workers' savings rates also fell, dropping to an average of 6.2% from a peak of 7.2% in 2019 and 6.6% in 2018.
The report, sponsored by Principal Financial Group, posits that the decrease in employer contribution rates was likely due to 403(b) plan sponsors either suspending or reducing their contributions to relieve financial pressures stemming from the pandemic.
Some 12.5% of the 379 plan sponsors surveyed suspended or reduced their contributions in 2020, according to the report. Of those that paused or lowered their contributions, 19.1% were small businesses with fewer than 49 employees.
"There is no doubt that the non-profit sector has been disproportionately impacted by the economic strains of the pandemic, particularly in certain fields, and some had to make the financial decision to cut back on plan contributions and savings," said Hattie Greenan, PSCA's director of research and communications, in a news release.
In addition to reducing their contributions, employees also borrowed against their retirement accounts and asked for hardship withdrawals to a greater degree. In 2020, an average of 13.6% of participants had a loan outstanding and an average of 1.3% made hardship withdrawals, up from 11.8% and 0.8%, respectively, in 2019. Participants also borrowed more money, with average loan amounts jumping to $16,195 from $9,483 the year before.
Plan participation rates, however, increased. More than 3 in 4 employees working for non-profits — 77.2% — made contributions to their 403(b) retirement accounts, up from 76.6% in 2019 and 72% in 2018.
The increase coincides with an increase in 403(b) plan sponsor adoption of automatic enrollment as a plan design feature. Nearly 3 in 10 sponsors — 28.7% — use automatic enrollment, up from 24.4% in 2019 and 21.8% in 2018. Just 14.9% of sponsors offered the option in 2011.
While non-profits have gradually increased the use of automatic-enrollment features in their 403(b) plans over the last decade, they still significantly lag their 401(k) corporate peers. A little more than 60% of 401(k) plan sponsors automatically enroll their employees in their companies' retirement plans, according to Ms. Greenan.
Non-profits, however, outpace their 401(k) counterparts in other design features. More than half (53.5%) of 403(b) plan sponsors report offering annuities as a distribution option within their plans, whereas only 17.2% of 401(k) plan sponsors do.
Non-profits are also more likely to offer ESG-focused investment options, with 37.7% offering them. Among 401(k) plan sponsors, just 2.6% do.