BALTIMORE, June 26, 2017 /PRNewswire/ --
NEWS
T. Rowe Price Retirement Plan Services, Inc.,
found that 61% of the employer-sponsored retirement plans for which
it provides recordkeeping services offer Roth contributions in
their 401(k) plans, up from 50% at the end of 2015. This represents
the biggest one-year increase in Roth contribution adoption since
the company began tracking the figure in 2007.
This new finding comes from T. Rowe Price's 2016 update
of Reference Point, an annual benchmarking report of
employer-sponsored retirement plans based on T. Rowe Price's
full-service recordkeeping client data. This report provides plan
sponsors the ability to review retirement plan trends and plan
participant behavior patterns to help them make more informed plan
decisions.
Reference Point is one component of T. Rowe Price's
comprehensive digital toolkit aimed at helping plan sponsor clients
and their advisors manage every aspect of their plan(s). Key
findings from this report are summarized by topic below, while the
executive summary and full report are available
at troweprice.com/referencepoint.
AUTO-SOLUTIONS TRENDS
Adoption of auto-solutions has
been on the rise since the Pension Protection Act of 2006, and it
continues to be a successful tool for plan sponsors to use within
their plans. Of the T. Rowe Price plan participant base:
- The number of plans with a 6% default deferral rate or more has
doubled since 2011, with 33% of plans offering this higher rate in
2016. The industry standard for the past 10 years has been 3%.
- The percentage of plans adopting auto-increase of participant
contributions and auto-enrollment has significantly grown in the
last five years. The percentage of plans adopting auto-increase
grew from 63.3% in 2011 to 71.5% in 2016. Similarly,
auto-enrollment increased from 39.8% in 2011 to 54.5% in 2016.
- Participation rates continue to be strongly tied to the
adoption of auto-enrollment, with participation 42 percentage
points higher in plans with auto-enrollment than those without
it.
CONTRIBUTION TRENDS
Pretax deferral rates continued
to increase in 2016 and now stand at 8%, the highest rate since
before the financial crisis. Likely factors contributing to this
increase include plan sponsors raising the default deferral rate
for their plans and improved market conditions.
INVESTMENT TRENDS
Plan adoption of target date
portfolios continued to rise. In 2016, 93% of plans at T. Rowe
Price offered target date portfolios. Additionally, 55% of
participants invested their entire account balance only in target
date products, an increase of nine percentage points since 2013.
The increasing popularity of target date products could
indicate that participants prefer a more managed approach verses
choosing their own allocation, or are sticking with their plan's
default option.
LOAN AND DISBURSEMENT TRENDS
Loans are a staple of the
retirement plan feature but can derail a participant's future
savings if not utilized properly. The percentage of participants
with loans at the end of 2016 is down marginally to 23.8%, which is
the lowest since the height of the financial crisis in early
2009.
T. Rowe Price also found that as of year-end 2016:
- The ratio of direct rollovers to cash-outs continued to
strengthen, with rollovers increasing to 81% in 2016, compared with
71% in 2009, and cash-outs decreasing to 19% in 2016, compared with
29% in 2009.
- Hardship withdrawals declined, with only 1.4% of participants
in plans at T. Rowe Price taking such a withdrawal, compared with
the 2% industry average.
QUOTE
Aimee DeCamillo,
head of T. Rowe Price Retirement Plan Services, Inc.:
"It's encouraging to see that so many of our plan sponsors are
continuing to take steps to prepare their plan participants for
retirement. An important demonstration of this is the 10 percentage
point increase we saw in 2016 in the number of plan sponsors who
offer Roth contributions in their 401(k)s. Roth contributions in
401(k)s offer important benefits to participants, including the
ability to diversify the tax treatment of retirement income.
Providing this option, as well as the education around its
benefits, reflects plan sponsors' commitment to the successful
retirement outcomes for their participants."
"We are continuing to see a favorable turn in participants'
financial behaviors in 2016. The percentage of participants taking
out a loan is down slightly and is at its lowest since 2009. We
also saw a strengthening ratio of rollovers to cash-outs. We
believe that educating participants on their retirement savings
plan has had a direct, positive effect on reducing plan leakage and
has dissuaded more people from using their savings for
nonretirement purposes."
REFERENCE POINT METHODOLOGY
Data are based on the
large-market, full-service recordkeeping universe of T. Rowe Price
Retirement Plan Services, Inc. retirement plans (401(k) and 457
plans), consisting of 642 plans and over 1.6 million
participants.
For plan-level analysis (i.e., averages by industry), a
plan-weighted average is shown. This process takes the average from
each plan and averages them together. A plan-weighted average
assigns plans with a smaller number of participants the same weight
as plans with a larger number of participants.
For participant-level analysis (i.e., averages by age and
tenure), a participant-weighted average is shown. This process adds
up all participants for all plans and takes one overall average. A
participant weighted average assigns plans with a smaller number of
participants less weight than plans with a larger number of
participants.
Data and analysis cover the time periods spanning calendar years
ended December 31, 2007, through
December 31, 2016.
Auto-increase and auto-enrollment data are based on plans that
are eligible to receive this service. Loan availability and usage
results are based on active participants with outstanding
balances.
ABOUT T. ROWE PRICE RETIREMENT PLAN SERVICES, INC.
T.
Rowe Price Retirement Plan Services, Inc. has been a retirement
solutions provider for more than 30 years and on December 31, 2016, served more than 1.9 million
retirement plan participants across more than 3,500 plans.
ABOUT T. ROWE PRICE
Founded in 1937, Baltimore-based T. Rowe Price Group, Inc. is a
global investment management organization with $861.8 billion in assets under management as of
March 31, 2017. The organization
provides a broad array of mutual funds, subadvisory services, and
separate account management for individual and institutional
investors, retirement plans, and financial intermediaries. The
company also offers sophisticated investment planning and guidance
tools. T. Rowe Price's disciplined, risk-aware investment approach
focuses on diversification, style consistency, and fundamental
research. For more information, visit troweprice.com,
Twitter, YouTube, LinkedIn, or
Facebook.
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SOURCE T. Rowe Price Group, Inc.