T. Rowe Price: Default Deferrals and Participant Savings Rates on the Rise

T. Rowe Price: Default Deferrals and Participant Savings Rates on the Rise. Pre-tax deferrals and automatic deferral rates are reaching new highs, according to new data from T. Rowe Price. In fact, trends look positive for large retirement plans across the board, the survey found.

T. Rowe Price’s 10th annual Reference Point benchmarking report evaluated the plan design features of 636 large 401(k) and 457 plans and the savings habits of 1.6 million participants. In a recent article, BenefitsPro highlighted 10 insights on plans and participants from the T. Rowe Price report.

Number one on the list was that average pre-tax deferral rates reached 8.3% — a record high for the decade in which T. Rowe Price has been producing the report. Four in 10 participants also increased their deferral rates last year. What’s more, sponsors are now defaulting participants into plans at a 6% savings rate, also at record levels. The margins are close — nearly one-third of plans enroll participants at 6%, whereas 32% enroll at 3%. However, the 6% deferral rate has surpassed the 3% rate for the first time, an indicator that plan sponsors are getting the message about the positive impact that increasing default deferral rates have on retirement readiness.

Participant account balances are rising, too. In 2017, participants’ average account balance was $92,402, up from $80,300 in 2015. That’s a significant improvement. In addition, the average balance for individuals age 50 to 59 was $152,579; it was $168,725, on average, for those age 60 to 64.

Catch-up contributions also rose to a 10-year high: 12% of individuals made contributions when they were eligible. Among those age 50 to 59, 11.3% of workers did so, and 14% among workers age 60 to 64.

Perhaps not surprisingly, target-date funds continue to account for the largest percentage of assets under management — more than 41% of all assets in 2017. By contrast, equity funds accounted for about 35%. Moreover, TDFs are resonating with younger workers. Three-quarters of workers age 20 to 29 invest in a TDF, whereas those age 60 to 69 are less likely to do so. Within T. Rowe’s plan universe, 56% of participants have all of their savings invested in TDFs, up from 46% in 2013.

Even still, plan sponsors are choosing to offer more investment options than they did a decade ago. In 2017, plans offered an average of 16.2 options, compared to 13.6 in 2008. More choice isn’t necessarily prompting participants to spread their savings across more asset classes, however; in fact, the opposite seems to be true. On average, participants’ savings are spread between 2.5 investments, according to T. Rowe Price.

Finally, among T. Rowe Price plan sponsors, the most common matching formula is 50% up to 6% of participants’ salary deferrals, with about one-third of plans using that formula. Another 11.6% of plans match 100% of 6% deferrals, while 7% of plans match 100% of 5% deferrals.

There are numerous positive trends that sponsors can take away from the latest T. Rowe Price benchmarking report: deferrals are up, as are default deferral rates; account balances are increasing; TDFs are pervasive in retirement plans, and participants seem to be making smarter use of them; and matching formulas seem to be increasing, as well. Nonetheless, there’s always room for improvement when it comes to helping participants increase their retirement readiness, so sponsors should be vigilant when it comes to seeking out and taking advantage of those opportunities within their own plans.

Robyn Kurdek

Robyn Kurdek

Freelance writer with nearly 2 decades of financial industry experience, with niche expertise in the defined contribution (DC) industry. I also have defined benefit (DB) plan knowledge. I write all types of content for retirement plan participants, sponsors and advisors, including web copy, newsletters, white papers, fact sheets, blog posts, financial wellness articles, and more. "I speak DC."
Robyn Kurdek
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