May 28, 2013

403(b) Plan Contributions Rising

Contributions, deferral rates up in 2012

Plan sponsors and participants in 403(b) plans increased their contributions to retirement plans in 2012, according to the Plan Sponsor Council of America (PSCA).

The fifth annual survey of 403(b) plans, sponsored by Principal Financial Group, found the majority of organizations that offered a 403(b) plan contributed to it, with the average contribution almost 10% higher than the previous year.

“Sponsors and participants alike are showing they understand the value of saving in 403(b) plans. They are taking actions more in what we see as the right direction to increase overall retirement savings,” Bob Benish, interim president and executive director of PSCA, said in a statement. “The findings validate that the voluntary retirement system is working well.”

More than 66% of participants are contributing to their plan, up from 64% in 2011. Average deferral rates increased as well, to 5.7% from 5.4% in 2011.

The survey also found more plan are offering a Roth feature. Nearly 24% of plans allowed Roth after-tax contributions in 2012, up from 22% in 2011. Large plans were far more likely to allow these contributions. Nearly 43% of large plans said they allowed Roth after-tax contributions in 2012, compared with less than 15% of small plans.

More plans are allowing catch-up contributions and more participants are making them, the survey noted. Almost 28% of plans are matching contributions made by participants 50 and older, and 17% of participants are making those extra contributions.

The survey found sponsors are also increasing their focus on educating participants. Email and one-on-one meetings were the most popular education methods. Nearly 71% of sponsors use email and 54% use one-on-one meetings. Webinars are also increasingly popular, with nearly a quarter saying they provide education that way, up from 20% in 2011.

Perhaps as a result of that increased focus on education, loans and hardship withdrawals dropped off in 2012. Less than 12% of participants had an outstanding loan in 2012, the survey found. Furthermore, the dollar amount of the loan represented only 1% of plan assets, about half of what the PSCA found in its 2012 survey of 401(k)s. The percentage of hardship withdrawals fell to 1.2% from 1.6% in 2011.

“The 403(b) loan and withdrawal numbers prove that participants are not abusing features that permit limited access to plan assets,” said Benish. “Those features are important in attracting participation, but clearly employees are exercising caution in how often they are used.”

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Read How to Spring Into the Retirement Plan Space on AdvisorOne.

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