PSCA survey shows increase in savings and participation in 403(b) plans

The fifth annual 403(b) plan survey from the Plan Sponsor Council of America (PSCA) shows that both sponsors of 403(b) plans and participants increased their financial commitments to retirement savings in 2012. Sponsored by the Principal Financial Group®, the benchmarking survey covers trends in retirement plans sponsored by non-profit organizations and public schools, colleges and universities.

“Sponsors and participants alike are showing they understand the value of saving in 403(b) plans. They are taking actions more in what we see as the right direction to increase overall retirement savings,” said Bob Benish, interim president and executive director of the PSCA. “The findings validate that the voluntary retirement system is working well.”

Savings and participation

The PSCA survey found that the percentage of participants contributing to 403(b) plans increased to 66.2% in 2012 from 64.3% in 2011. Average deferral rates also increased to 5.7% from 5.4% in 2011.

Roth features

The number of 403(b) plans permitting Roth after-tax contributions continues to grow, the survey found. In 2012, 23.8% of plans allowed Roth contributions, up from 21.7% in 2011 and continuing the growth from 10.9% in 2007.

Catch-up contributions

The number of plans permitting catch-up contributions for those 50 and older continues to increase and more plans (27.7%) are now matching those contributions. The survey found that 17% of participants made catch-up contributions in 2012 compared to 13.4% in 2011.

Participant education

403(b) plan sponsors increased the use of all approaches to education with a greater use of email (70.7% in 2012 vs. 65% in 2011); webinars (24.8% in 2012 vs. 19.9% in 2011) and one-on-one meetings with service providers (54.2% in 2012 vs. 50.6% in 2011).

Loans and withdrawals

The survey found that only 11.6% of 403(b) participants have outstanding loans and the dollar amount represents only 1% of plan assets—about half the amount reported in the PSCA’s 2012 survey on 401(k) plans. The number of participants taking a hardship withdrawal from 403(b) plans continued to decline from 1.6% in 2011 to only 1.2% in 2012.

“The 403(b) loan and withdrawal numbers prove that participants are not abusing features that permit limited access to plan assets,” said Benish. “Those features are important in attracting participation but clearly employees are exercising caution in how often they are used.”

Areas of improvement noted

The survey results suggest several areas for improvement, which the PSCA said “can be opportunities for financial professionals and TPAs.” For instance, only 14.9% of small plans permit Roth after-tax contributions compared to 42.9% of larger organizations. Higher education institutions on average make 65 funds available for participant contributions, two to three times higher than other industries in the survey.

Source: PSCA press release, May 22, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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