Mixed Messages?

By Nevin Adams • July 13, 2018 • 0 Comments
You’ve doubtless at some point in your career had someone walk up to you and say “I’ve got good news, and I’ve got some bad news.” Well, there was good news – and some not-so-good news about plan designs and participant behaviors in a recent industry survey.

According to T. Rowe Price’s 10th Annual Reference Point Benchmarking Report, which was based on the experience of 636 plans from the large-market, full-service recordkeeping of T. Rowe Price Retirement Plan Services, there was – well, both good and bad news.

Smarter Starts


The good news is that, when it comes to automatic enrollment default rates, the “norm” would appear to be more than the 3% embodied as a starting point in the Pension Protection Act of 2006 (and several decades of experience prior to that).

At least among plans recordkept by T. Rowe Price, nearly a third (32.4%) of the responding plans now use a 6% default deferral rate, narrowly outpacing the 31.9% who rely on the traditional 3%. Moreover the survey found that nearly two-thirds of plans have set or increased their default to something in excess of 3%. That matched the findings of the Plan Sponsor Council of America’s (PSCA) 60th Annual Survey of Profit Sharing and 401(k) Plans.

Contributory “Negligence?”

The bad news? An astounding one-third (33.9%) of those eligible to contribute – didn’t. And that’s up from 31.8% a year ago (and 31.2% the year before that).

Roths Rise

More good news – at least in terms of expanded participant choice – was that responding plans were more likely to offer a Roth option in 2017. A full two-thirds of the responding plans now provide that feature (once again matching the findings of PSCA’s 60th Annual Survey of Profit Sharing and 401(k) Plans) – though the take-up rate among participants overall remained modest. That said, the overall percentage of participants making Roth contributions rose to a 10-year high (6.9%).

Age “Gist”

On the negative side, there does, however appear to be something of a generation gap emerging. While nearly every age group saw increases in the percentage of participants making Roth contributions, the 30–39 age range experienced the largest increase, with nearly one-in-ten (9.4%) making a Roth contribution. Those aged 20-29 weren’t far behind; 8.6% went with Roth.

Target “Practices”

More good news – certainly in terms of better, and more regularly reviewed, asset allocations was that nearly every responding plan (94%) offered target-date products in 2017, and more than four-in-ten (41%) of total assets under management were invested in TDFs – making it the dominant asset class. That wasn’t the case across the board; in plans with less than 1,000 participants and less than $5 million in assets – less likely to embrace automatic enrollment and its attendant defaults – TDFs weren’t #1. But they were #2.

More significantly, though about three-quarters of participants under 30 were invested in TDFs (also more likely to be defaulted), and just over half (56.7%) of those aged 30-39 were – but – and at a point where glide paths arguably begin to diverge – only about a third (37.8%) of those aged 60-64 were in TDFs.

Unclear on the Concept

On the other hand, more than one-in-five (22%) of participants have only a partial balance invested in target-date funds. That’s right – apparently deciding not to put all their eggs in one basket…even though that’s what it’s designed for. Oh, and it’s been that way since at least 2013, according to the T. Rowe Price data.

“Direct” Deposit

The good news? Over three-quarters of participants aged 40-69 took a direct rollover rather than a cash-out in 2017. And direct rollover rates remained at 81% last year, matching a 10-year high for that stat.

Cash “Cache?”

On the other hand, nearly half (47%) of those aged 20-29 cashed out.

Loan Arrangers


On at least a modestly good note, loan usage decreased in 2017 (albeit it’s still at 23.4% in the T. Rowe Price Survey, a bit higher than other industry reports), and the number of participants with multiple loans declined (to 15.6%). The percentage of Millennial participants with outstanding loans also decreased.

But the bad news is that the percentage of participants over age 50 with outstanding loans increased by an average 2.2%.

Catching Up Catching On

The good news is that the percentage of eligible participants making catch-up contributions hit a 10-year high in 2017. About one-in-eight (12.2%) took advantage in 2017, compared with 10% in 2008. More than 15% of those aged 65-69 did so in 2017, as did 14% of those aged 60-64.

So – arguably we’ve got good news – and some bad news. Or, said another way, some things to celebrate and build on, and some to work on.

On the subject of good news and bad news – and what your preference for one over the other says about you, check out: https://www.psychologytoday.com/us/blog/ulterior-motives/201406/why-hearing-good-news-or-bad-news-first-really-matters