Extensive Plan Data Reveal Key Design Features and Trends
WASHINGTON, DC, December 20, 2016 -- A new in-depth study of 401k plans by BrightScope and the Investment Company Institute (ICI) finds that the great majority of employers that sponsor 401k plans -- more than three-quarters -- contribute to their plans, using a range of formulas when they provide matching contributions. The report, released today, also reveals that plans offer a wide variety of investment choices and that mutual fund fees in 401k plans have trended down.
The comprehensive study, "The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401k Plans, 2014," analyzes the most recent detailed data available from the Department of Labor on a wide range of private-sector 401k plans. The analysis first explores the presence of employer contributions across the universe of about half a million 401k plans. Next, focus shifts to details in plan design among more than 50,000 large 401k plans, each holding at least $1 million in plan assets and typically having 100 participants or more. The report studied plan sponsors' combinations of automatic enrollment, employer contributions, and participant loans in those 401k plans. In addition, using a third sample -- with detailed investment data compiled in the BrightScope Defined Contribution Plan Database on nearly 30,000 large 401k plans -- the study examined trends in plan investment options and fees, providing additional insights into the 401k system.
"This study underscores how the 401k plan's flexible structure permits employers to configure their own plan designs to encourage employee participation and meet the needs of their workforces," said Sarah Holden, ICI's senior director of retirement and investor research and a researcher on the study. "As the 401k market evolves, plan sponsors revisit and refine their plan designs and remain committed to promoting retirement saving, offering a wide range of investment choices, and often making contributions to the plans."
Key Facts on Employer Contributions Based on the Study
401k Plan Sponsors Use a Variety of Employer Contribution Designs
Percentage of 401k plans in the BrightScope database, 2014
Note: See Exhibit 1.6 in the report for details on the definitions and sample.
Mutual Fund Fees, Total Plan Costs Continue Trending Down
Based on the data from the BrightScope database, the study found that mutual fund fees in 401k plans trended downward between 2009 and 2014. The study also found that fund expenses are typically lower in larger plans. For instance, the average asset-weighted expense ratio for domestic equity mutual funds was 0.82 percent for 401k plans with $1 million to $10 million in plan assets, compared with 0.39 percent for 401k plans holding more than $1 billion in plan assets.
"Fees in 401k plans continue to trend downward over time," said Brooks Herman, head of data and research at BrightScope, a unit of Strategic Insight. "Increased transparency in the form of public disclosure have allowed plan participants and plan sponsors to judge the impact of fees on 401k savings."
Key Findings on Investment Choices Offered Through 401k Plans
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