According to the latest benchmarking reports from the Plan Sponsor Council of America (PSCA),1 when evaluating the success of employee retirement plans, most employers offering 403(b) and 401(k) plans look to three key metrics: participation rates, deferral rates, and average account balances. As sponsor of PSCA’s 2024 403(b) Plan Survey, Mutual of America is committed to helping plan sponsors make the most of their plans, and welcomes the opportunity to offer strategic plan design options to impact these three key metrics.
The following are ideas centered around engaging employees as early as possible to improve key outcomes.
Automatic Enrollment
Automatic enrollment arrangements can help engage employees early and bridge the gap between employees who are eligible to participate in the plan and those who do. According to the PSCA surveys, only 73.7% of employees eligible to contribute to a 403(b) plan and 86.9% of employees eligible to contribute to a 401(k) decide to contribute. Those participation rates could be increased by adopting an automatic enrollment arrangement.
Employer Matching Contributions
Eligibility for matching contributions can be leveraged as a recruitment tool to help attract new employees and promote plan engagement from Day 1.
More than four out of 10 403(b) plans (43.4%) and 401(k) plans (43.8%) allow employees immediate eligibility to receive employer matching contributions. Another 40% of 403(b) plans and 17.8% of 401(k) plans require a year of service before offering matching contributions.
Mutual of America recommends that plan sponsors review eligibility requirements from time to time to ensure alignment with overall benefits and the goals of the organization.
Investment Options
The role of a retirement plan’s investment options on participant engagement shouldn’t be overlooked. Too many fund options to which employees can contribute can make it harder for employees to make selections, and too few options may not offer enough to meet all employees’ needs or interests.
On average, 403(b) plans offer 25 investment options for participant contributions and 401(k) plans offer 22 options. Target retirement date funds are the most popular—offered by 84.2% of 401(k) and 89.2% of 403(b) plans. Target-date funds typically serve as the default options. Offering these funds makes it easy for employees who may be less sophisticated to make investment decisions.
Employee Education
Making employees aware of the benefits available in their workplace retirement plan is key to engagement. It’s important for employees to understand the benefits of the retirement plan, how much they should be saving and how they are investing, so they take advantage of what’s available.
Mutual of America offers in-person and virtual one-on-one sessions and educational seminars for participants covering a wide range of financial wellness topics including the basics of investing and action steps for retirement readiness. If you have questions, please contact Mutual of America representative Steven Ortiz at [email protected].
Steven Ortiz is the Vice President of National Accounts at Mutual of America Financial Group.
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1 Sources for all stats included are the “2024 403(b) Plan Survey: PSCA’s 16th Edition of Comprehensive 403(b) Plan Benchmarking Data” and the “PSCA 67th Annual Survey: The Source for 401(k) Plan Benchmarking Data.” 2 Simple 401(k) plans, governmental plans and church plans are all exempt from this provision. Related startup credit for costs up to $5,000.
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