In response to growing concerns about retirement readiness, many employers are increasing the amount of their retirement plan contributions, a move industry experts say has also led to increased account balances and plan engagement.
On average, employers contributed 4.7% of pay to the plan in 2013, up from 4.5% in 2012 and 4.1% five years ago, according to the Plan Sponsor Council of America. The trade group's 57th Annual Survey of Profit Sharing and 401(k) Plans found most (80.1%) plans make a match on employee contributions and 98% of those plans made the match in 2013.
Despite histrionics and uncertainly in the world around us, plan sponsors and their organizations are helping participants accumulate significant balances in their defined contribution plans, said Robert Benish, PSCA Executive Director.
Employee retirement account balances in 2013 increased by 18.2%, the survey found.
After years of economic uncertainty in which companies began to drop or freeze their contributions to employee retirement accounts, the employer match started to make a comeback in the early part of this decade.
The 2012 edition of the PSCA survey found company contributions were up pretty much across the board, both in the percentage making contributions as well as the average contribution at the time. The most dramatic difference, however, was with companies that had 50-100 participants. For this group, the percentage of companies making matching contributions rose from 84.8% to 95.9% and the average company contribution at that time rose from 3.5% percent to 4.4% of pay.
The impact of the challenges of the last few years was definitely size correlated, said Hattie Green, PSCAs research manager. Big companies were the first to suspend and reduce contributions, whereas the small companies hung in a little longer. Big companies were the first to start bringing back the contributions and then increase them. Small companies are now bringing back the match and quickly.
Retirement Security Act of 2015
Recognizing the importance of employer contributions, Congress is pushing to make it easier and more cost-efficient for some employers to make larger contributions.
A bipartisan legislative proposal to spur greater sponsorship of retirement plans by smaller employers , The Retirement Security Act of 2015, was introduced jointly as S 266 in the Senate and HR 557 in House of Representatives in January.
The legislation is being praised by employer groups including the U.S. Chamber of Commerce and the American Benefits Council.
One of the components of the bill would create a new safe harbor employer matching contribution limit. Current safe harbors effectively cap at 6% the amount of pay eligible for an employer match.
The proposal would create an additional, optional safe harbor that would allow employees to receive an employer match on contributions up to 10%, as well as allow employers to default participants into a 10% contribution rate, according to summary of the measure issued by the office of Rep. Vern Buchanan (R-Fla.), a cosponsor of the measure.
The Senate Finance Committee in 2015 will also take up the SAFE Retirement Act proposed by Sen. Orrin Hatch (R-Utah), which would expand the use of multiple employer plans, allow public defined benefit plans to purchase private annuities, and create a starter 401(k) plan for small, private-sector employers.
The Insured Retirement Institutes Senior Vice President and General Counsel Lee Covington said he believes the legislation will have a positive impact on employees receiving larger employer matches.
In particular, he said, the Hatch bill includes provisions to enhance auto-enrollment and auto-escalation features, which will lead to more employees defaulting into retirement savings accounts at higher savings rates.
It would increase the default enrollment rate to 6% from 3%, and in terms of auto-escalation it would raise the cap to 15%, Covington said. That would be a benefit to those that are not fully taking advantage of the employer match out there.
More than 50% of plan sponsors are setting retirement plan default savings levels below the plans match threshold, he said an AON study found.
If that default rate is increased, theyll get the full match from the employer, or closer to it, at the least, he adds. Thats free money that they would now have access to.
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