Participants in 401(k) plans notched up their deferral rates for the third year in a row, according to the Plan Sponsor Council of America's latest annual survey of profit sharing and 401(k) plans.
In 2018, participants contributed an average of 7.7% of their pay to their retirement accounts, up from 7.1% in 2017 and 6.8% in 2016, the survey found.
Meanwhile, employers became more generous, kicking in an average contribution of 5.2%, up from 5.1% in 2017 and 4.8% in 2016.
The combined average employee and employer contribution of 12.9% for 2018 broke the previous year's record 12.2% combined savings rate, according to the survey results.
While fewer plan sponsors used automatic enrollment last year, those that did employed auto escalation much more. About 3 in 5 employers (60.2%) used automatic enrollment last year, down from 61.2% in 2017. However, the percentage of plans with auto enrollment that auto-escalated employee deferrals jumped to 78.2% from 72.6%.
In addition, employers continued to drive up default deferral rates. While the most common default deferral remained at 3% of pay, present in 31.6% of plans, an increasing number of plans are now using a default of 6%. In 2018, nearly 30% of plans used 6% as the default rate, up from 23.8% in 2017.
"Employer-sponsored retirement programs continue to demonstrate their value as the primary retirement savings vehicle for American workers," said Hattie Greenan, PSCA's director of research, in a news release. "The flexibility and encouragement of design features incorporated by plan sponsors have clearly made these vehicles attractive and effective."
The survey suggested that employer nudging might have played a hand in the uptick in employee contributions. Almost one-third of plan sponsors (30.2%) now communicate specific savings targets to participants, with nearly half of those recommending a savings rate of 10% or more, according to the survey.
The survey reflects the 2018 plan-year data of 608 defined contribution plan sponsors.
