The latest 401(k) survey from the Plan Sponsor Council of America highlights several key trends shaping retirement planning today. Based on 2023 plan-year data, the survey reported that participation and contributions are on the rise—despite market turbulence— thanks in part to higher IRS limits, auto-enrollment features and growing interest among younger employees. With about 88% of eligible employees holding an account balance and 86.9% making deferrals, 401(k) plan participation rates in 2023 increased slightly over 2022, but not to the highs seen in 2021.
SECURE Act 2.0 is making a noticeable impact, with many plans adopting optional provisions that give participants more flexibility during major life events—like natural disasters or starting a family. At the same time, cybersecurity is becoming a top priority, as more plan sponsors take steps to safeguard participant accounts in an increasingly digital world.
Here’s a closer look at the latest trends in 401(k) planning.
Optional Provisions and Distribution Trends
While many plan administrators implemented mandatory provisions called for by SECURE Act 2.0, the optional provisions regarding distributions proved to be the most popular among participants. About 72% of plans allowed natural disaster distributions while 53.2% of plans adopted the distribution in the event of a qualified birth or adoption (QBAD). Almost half, or 48.9%, of plans adopted the distribution in the event of a terminal illness diagnosis provision.
Less popular was the employer match on student loan payments, with only 2% of surveyed plansadding the option. Administratively, it’s been difficult for some organizations to manage, especially since most recordkeeping systems weren’t exactly built to accommodate it and some organizations may already provide student loan repayment benefits.
The survey also noted that some plans have excluded part-time employees, which could be a violation of federal law under the SECURE and SECURE 2.0 Acts. Those that have this exclusion in their current Plan procedures should ensure they’re following SECURE Act 2.0 guidelines and revisit them, if necessary. Restrictions on eligibility can be put in place, but any eligibility restrictions cannot contract this new guidance.
One barely utilized provision to consider adopting is the short-term emergency account to cover unexpected costs for participants. The survey found that only 1% of plans were considering adding it.
Contribution Trends
Contributions increased year over year, due to a variety of factors. The IRS increased limits for participants, particularly for those in the over 50 range for future catch ups. People were also more aggressive about their deferrals, contributing to the upward trend. Young people are taking more interest in retirement savings and their participation rates are rising as an effect. Social media has played a large role in promoting access to financial planning information, which has no doubt had an impact. Although it’s been volatile lately, the market has also been on an upward trend, which influences people to contribute more to their plans. Employer contributions also increased, partially because of plan matching provisions.
Auto enrollment is also responsible for the rise in contributions. About 13% of plans use auto enrollment, up from four years ago. There’s a moderate trend emerging among the plans we’ve personally seen: if people must opt in to a plan, enrollment lowers. Auto enrollment keeps people in the plan and, administratively, it’s also less work administratively.
Cybersecurity in 401(k) Plans
Cybersecurity is a focus for plan sponsors, especially since the Department of Labor has emphasized its importance in protecting participant assets. Cybersecurity awareness programs were put in place by 60% of organizations. The survey also found that about 72% of plans use multifactor authentication to protect their plans.
When reviewing your own plan’s cybersecurity program, ask yourself if you’re doing everything possible to make your plan secure. Have you revoked access for terminated employees? How are you authenticating requests and identities? Remember: if a breach occurs, you bear the responsibility as the plan sponsor.
For more information on how our 401(k) audit team can help, request a free consultation below to discuss your unique 401(k) audit needs.
