March 11, 2015
Benefits: Retirement - 2015

Offering either a 401(k) or 403(b) retirement savings plan to employees is a best practice for many U.S. employers. In fact, 81.4% of the employers responding to our 2015 survey offer one of these plans. Only 36.4% (compared to 39.9% in 2014 and 33% in 2013) of those who answered the question, however, automatically enroll employees, though 3% (compared to 2.3% in 2014 and 2.5% in 2013) plan to implement auto-enrollment in the future.

Employee contributions

When the employee enrollment in a defined contribution plan is automatic, the percent of employee earnings initially contributed is less than 3% for 23% (compared to 23.3% in 2014 and 27% in 2013) of the employers who responded to this question in our survey. It is 3% for 40.2% and 4% of employee earnings for 10%. The employee contribution is 5% of earnings for 9.5% and 6% of earnings for 8.6% as well. More than 6% of employee earnings are contributed for 8.6%.   

For 26.5% (compared to 22.2% in 2014) of survey participants, the level of voluntary participation in their 401(k) or 403(b) plans is less than 30% of employees. For 35.3% (compared to 37.6% in 2014), voluntary participation is 31% to 70% of employees and for 38.2% (compared to 40.2% in 2014) voluntary participation is above 70% of employees.

The percentage of their earnings that employees begin with when contributing to voluntary 401(k) or 403(b) plans is less than 3% of base salary for 24.8% (compared to 23.3% in 2014) of our survey participants. It’s 3% of earnings for 29.4% (29.3% in 2014) and 4% of salary for 13.2% (14.5% in 2014). Responses to our survey show that employees begin their contributions at a rate of 5% of their base salary for 14.8% (15.9% in 2014) of employers, at 6% of salary for 13% (12.2% in 2014), and over 6% of earnings for 4.9% (4.8% in 2014) of employers.
Though 87.3% don’t allow it, the practice of employees adding the “cash-out” for their unused vacation or sick time to their 401(k) or 403(b) plans is permitted by 7% (6.3% in 2014) of employers and 5.6% (4.1% in 2014) are considering whether to allow it.

The maximum amount an employee may contribute annually to their 401(k) or 403(b) plan for 91% (95.3% in 2014) of employers is the highest amount allowed by the IRS, which was $17,500 for 2014 and $18,000 for 2015.

Employer contributions

Though 19.9% have never provided an employer match, the majority (74.4%) of the employers responding to our survey that offer a 401(k) or 403(b) plan to their employees also provide a matching contribution. Though 3.3% temporarily stopped their employer match in recent years and 2.4% stopped their match but plan to reinstate it, 11.4% maintained their matching contributions throughout the recent recession.

The level of employers’ matching contributions is as high as 6% of employee earnings for 19.6% (23.9% in 2014) of employers, up to 5% for 13.2% (14.7% in 2014), up to 4% for 14.6% (14.9% in 2014), and up to 3% for 14.8% of employers. Up to 10% is the level for 2.3% (3% in 2014) of employers and 2.4% (3.4% in 2014) of survey participants match more than 10% of employee earnings.

Matching employee contributions dollar-for-dollar is the practice for 33.6% (down from 41.4% in 2014). A match rate of 75¢ to the dollar is the norm for 1.6%, 50¢ on the dollar is provided by 23.6% (down from 31.3% in 2014), and 25¢ per dollar of employee contribution is standard for 9.9% (9.4% in 2014) of employers. No match is provided by 31.3%.

The employee service requirement for vesting of employer contributions is 5 years for 25.6% (23.8% in 2014) of employers and 15.9% (12.5% in 2014) require more than 5 years. Less than a year of service is required by 21.7% (up from 25.6% in 2014) of employers, 1 year is required by 18.9% (16.5% last year), 2 years is the rule for 5.1% (4.9% in 2014), 3 years is required by 9.7% (down from 13.3% in 2014), and 4 years is the vesting level for 3.1% (3.4% last year).

Plan features

Less is more and more is less when it comes to the number of investment options offered in 401(k) or 403(b) plans in 2015 when compared to the number offered in 2014. For example, more than 15 investment options are available to 43.1% of employers (down from 50.7% in 2014) and 11-15 options are offered by 27.7% (same as last year). Another 16.3% (13.4% in 2014) offer 6-10 investment options, and 12.9% (8.2% in 2014) of employers in our 2015 survey offer 1-5 options.

Target Date/Life Cycle funds are available for 65.3% of survey participants. The in-plan Roth conversion, a feature made available by the Small Business Jobs Act of 2010, is available for 29.8% and 3.5% are planning to add the feature.

Retirement benefits in 2015 are about the same as 2014 for 87.1% of survey participants and more generous for 4.5%. It’s been 5 years or more since 24.9% of our survey participants conducted a comprehensive review of their retirement benefits package. A thorough review was conducted in 2014, however, by 41.7% and in 2013 by 14.1%.

Benefits planning and administration

When it comes to deciding which retirement benefits to offer, 34.5% work with a consultant to create plans and 29.3% evaluate benefits offered by other companies and their competitors. A survey to find out what employees have an interest in is conducted by 9% and 41.8% are guided by the cost.

Retirement benefits are managed in-house by 18.9% of those who responded to this question in our survey. Some of the administration of benefits is outsourced by 43.1% and all administration is outsourced by 38%.

Our survey shows that 9.7% plan to add or make changes to their 2016 retirement benefits package, 61.6% of employers have no additions or changes planned, and 28.8% are not certain at this point in time.

For those who are planning to add or make changes to their retirement benefits, 13.1% are planning to add a defined contribution plan such as a 401(k), 403(b), or Roth 401(k) and 17.9% are planning to increase their employer match to their existing defined contribution plan, while 6.2% are planning to reduce the level of their employer match.

An increase in the length of service required for vesting of employer contributions is planned for 3.6% and 4.4% plan to reduce their length of service requirement.

Cleaning up the language in their plan documents is a priority for 36.1% and a change in how documents are distributed is planned for 19%. Current defined contribution plans will be eliminated for 2.6% (down from 3% last year) of participants who answered this question in our survey.

The addition of a defined benefit plan is planned for 6.9% and 9.9% expect to increase the employer contribution to their existing plan. For 6.6%, however, a reduction in their employer contribution is planned.

The “Other” selection for the question about changes to 2016 retirement benefits accounted for 81.8% of the responses and includes:

  • Add auto enroll employees, 2.68%
  • Change plan options, 5.80%
  • Add retiree insurance benefits, 1.79%
  • Change provider/administrator, 4.02%
  • Change employer contribution/match, 4.46%
  • Change service/eligibility requirement, 3.57%
  • Unsure, 23.66%
  • No changes, 48.21%
  • Other, 7.59%

It’s almost an even split when it comes to whether employers offer financial planning assistance to their employees with 46.5% offering such assistance and 48.3% not providing this service to employees. The remaining 5.2% aren’t sure whether this benefit is offered.

Early retirement is an option for the employees of 17.3% of our survey participants. It is not offered by 77.3%, though, and 5.5% aren’t sure. Of the employers that do offer early retirement, 13.1% ask the retiring employees to sign a waiver/release of claims against the company. Surprisingly, 57% (55% in 2013) do not make signing a waiver/release a requirement and 29.9% are not sure if it’s a requirement.

Survey participants

A total of 1,435 individuals participated in this survey, which was conducted in February 2015. Of those who identified themselves, 50% represent privately owned companies, 10.3% are with public entities, 17% work for government, and nonprofit organizations account for 18.7%.

The majority (56.7%) of our survey respondents provide HR services to a workforce of 1-250 employees. Another 13.2% provide guidance to 251-500 employees at their organizations and 9.5% have a workforce of 501-1,000 employees. Companies with more than 1,000 employees account for 20.5% of survey participants.

Over half (57.7%) of the participants are in service industries; 22.9% are in agriculture, forestry, construction, manufacturing, or mining; 7.6% are in wholesale, retail, transportation, or warehousing; 5.1% are in real estate or utilities; and 6.6% are in public administration.

HR/benefit managers and directors account for 51.3% of the survey participants who self-identified, other HR/benefit professionals make up 19.3%, 8.9% are VP level or higher, and 20.4% are in other areas with HR responsibilities.

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