The average employee pretax deferral rate reached 8.3% in 2017 — the highest in the 10 years T. Rowe Price has been reporting participant data.
T. Rowe Price released its 10th annual benchmarking report on 401(k) participant data, Reference Point, which is based on the firm’s full-service recordkeeping client data for 2017. Data are based on the universe of T. Rowe Price Retirement Plan Services retirement plans — 401(k) and 457 plans — which consists of 636 plans and more than 1.6 million participants.
Plan design continued to be one of the strongest drivers of outcomes, led by features such as auto-enrollment and auto-increases with opt-out as well as adoption of higher default deferral rates, Roth contributions, and target date products.
“We continue to see the significant impact plan design and financial wellness programs have on participant behavior, as evidenced by the increase in both participation and deferral rates and decrease in loan usage,” Aimee DeCamillo, head of T. Rowe Price Retirement Plan Services, said in a statement.
Auto-Enrollment and Auto-Increases
Adoption of auto-solutions has been steadily growing since 2006, and the proven successes of auto-enrollment and auto-increase features continue to strengthen their popularity among plans at T. Rowe Price.
According to the report, the average participation rate in auto-enrollment plans is over 42 percentage points higher than in plans without auto-enrollment (87% participation for auto-enrollment plans compared with 45.4% for non-auto-enrollment plans) in 2017.
The report also finds that participation in auto-increases is over five times higher in plans that use the opt-out versus opt-in option.
Adoption of Higher Default Deferral Rates
The number of retirement plans with a 6% default deferral rate surpassed the number of plans with a 3% default rate, which is considered the industry standard, for the first time, the report finds.
According to the report, 32.4% of plans had a default deferral rate of 6%, compared to the 31.9% that had a default rate of 3%.
“While the difference might be slight, it’s a sign that plans are continuing to re-evaluate adequate savings rates to help participants retire ready,” according to the report.