2017: A Good Year for Individual Retirement Account Plans and Participants

October 9, 2018

Auto Features are Contributing to Participation and Average Balance Increases

It was a good year for individual account plans, including 401(k)s and 457s. In fact, 2017 may go in the record books as the first year the number of plans with an average auto-enrollment deferral rate of 6 percent exceeded the number of plans with a default deferral rate of 3 percent, as it has commonly been. 

This change, along with market appreciation, may well have factored into the significant increase in average 401(k)/457 account balances during the year. Account increases in 2017 averaged $9,583, compared to average increases of $2,502 in 2016. Participants aged 60-64 experienced the most dramatic account balance increases, from $150,736 in 2016 to $168,725 in 2017—a difference of $17,989. 

The same report from which these findings were culled found additional positive impacts on employee retirement plans stemming from auto-enrollment. Average participation in plans using auto-enrollment was 42 percentage points higher than their non-auto-enrolling counterparts; 87 percent of employees participated in plans with auto-enrollment, compared to 45 percent of those without this feature. 

Automatic deferral increases also showed remarkable success. In plans requiring participants to opt out of automatic increases, about 1/3 of participants opted out while 2/3 allowed their deferral rates to increase automatically. When required to opt in, just 13 percent did so.

This strategy may be partly responsible for the uptick in deferral rates overall in 2017. Employee pre-tax deferrals reached 8.3 percent for 2017, the highest ever reported for this survey. 

Roth Popularity Continues

Roth accounts have increased in popularity among the surveyed plans. Employees between the ages of 20 and 40 took particular advantage of the availability of Roth accounts in their plans. 67.4 percent of plans allowed Roth contributions in 2017, compared to 60.3 percent the previous year. All but the very youngest participants—those under 20 years of age—contributed more via Roth contributions in 2017 than in 2016. Taking the most advantage of these post-tax contributions were employees aged 30-39; their Roth contributions increased by 1.4 percent over 2016.

Participants Pick a Few Good Investments From a Large Array of Choices

Plans made 2017 the fifth year in a row during which they increased the number of investment options available in the plan. On average, plans offered 16.2 investment options, up very slightly from 16.1 on average the year before. Participants, however, seem to be concentrating on just a few investment selections for their individual accounts. The average number of investments in a participant’s account in 2017 was 2.5, compared to the high mark of 3.0 in 2008.

Target date plans had been adopted by 94 percent of plans by 2017, the highest number yet in this survey. In fact, since 2011, the number of plans offering target date funds rose by more than 9 percent.

See more results from Reference Point, T. Rowe Price Defined Contribution Plan Data as of December 31, 2017 at https://tinyurl.com/TRP-DC-Data.

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