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Does Your 401k Or 403b Plan Have The “Right” Features?

By January 5, 2022No Comments

At ACSI, we believe that retirement plans, especially 401k Plans and 403b Plans, should not be one-size-fits-all.  This is consistent with our business objectives: “Helping businesses choose the right retirement plan, with the right features, run the right way”.

One of the ways that we stay on the cutting-edge of plan design options is by reviewing about a dozen national studies that monitor the features that are being used in plans.  One such annual study, done by the Plan Sponsor Council of America (PSCA), recently reported the results of its 2020 survey of 518 plans.

The following are some of the results that we believe are noteworthy.  Employers with 401k or 403b Plans, or who are considering establishing such a Plan, should consider whether these features are a “good fit” for the Plan.

Relaxing the eligibility requirements for Plan participation is becoming more common.  Use of the IRS maximum waiting period – generally, one year of employment with 1,000 hours worked during the year – is becoming less common as employee recruiting has become more competitive.  The PSCA reported that among the surveyed employers, Plan eligibility of part-time employees continues to increase, with 93% of employees being eligible to participate.  Of course, the pros-and-cons of relaxed eligibility need to be analyzed, including the potential adverse impact on certain IRS-required Plan testing, and how much the cost of the employer’s Plan contributions may increase.

Relaxed eligibility does seem to have an “if you build it, they will come” result.  The PSCA reported that last year, almost 90% of eligible employees made Plan contributions.

We wrote articles earlier this year about the Federal and NY State efforts to “push” employers to include automatic enrollment in retirement plans.  The survey results show that more employers voluntarily continue to adopt auto-enrollment, with 62% of Plans now using this feature.

Similarly, the “default” automatic contribution rate – the percentage of pay that is deducted from pay and contributed to the Plan if the employee does not make a voluntary contribution election – continues to change.  Auto-enrollment, which first was officially approved decades ago, initially most-commonly used a 3% of pay default rate.  However, almost two-thirds of the Plans surveyed by the PSCA now use a default rate greater than 3%, and the most common default rate – used by one-third of the Plans – is 6% of pay.

Finally, the popularity of including a ROTH after-tax contribution feature in a 401k or 403b Plan continues to increase.  A ROTH option now is available in more than 86% of Plans.

ACSI is available to help you learn more about your options for 401k or 403 Plan features.

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