On the 10th anniversary of the 2006 Pension Protection Act (PPA) which accelerated auto-features and has dramatically increased participation putting American workers with access to a retirement plan at work on the path to a better retirement, we are at a crossroads. Plan sponsors can either sit on their laurels and become complacent or, with the help of enlightened advisors and providers, take the next step to help workers, especially Millennials. So what has happened and what’s ahead?
T Rowe Price, a major defined contribution (DC) record keeper, and a top target date fund (TDF) provider, created a simple infographic illustrating the strides taken to improve outcomes over the past 10 years inspired by the PPA which include:
- TDFs:
- 73% of plans are offering a TDF up from32% – a dramatic increase
- 70% of Millennials 20-29 use a TDF
- Of those investors using a TDF, there has been a 27% increase of those 100% invested since 2011
- Auto-enrollment has grown from 17.5% to 60.7% of plans
- With plans using auto-enrollment, auto-escalation has rising from 11.6% to 82.2%
- The use of Roth features has increased every year since 2008
For plans using auto-enrollment, participation is 88% compared to 48% that do not and 84% of participants that opted out of auto-enrollment stay in the plan when re-enrolled. But, as dramatic as these improvements have been for plans using T Rowe Price as a record keeper, there are still problems such as 38% of plans deferring at 3%.
So what’s ahead?
- More companies using the Ideal Plan
- Stretch match
- Increase auto-deferral to 6%
- Reset investment options to the QDIA (default option) for some participants
- Participant engagement through financial wellness programs
- Retirement income or distribution strategies
Before the PPA, the focus was on getting more companies to offer DC plans which continues today with state mandated plans; the PPA has given us all insights into how to improve outcomes over the last 10 years. As CFOs start to realize that it’s important for the health, viability and competitiveness of their companies to put more people to retire on time, perhaps the next decade will be as fruitful as the last one.
[pdf-embedder url=”https://401ktv.com/wp-content/uploads/2016/08/PPA-Infographic.pdf”]
