401(k) Participation and Deferral Rates Rising

The number of small businesses that have adopted a defined contribution plan is growing significantly.  According to a recent study by Vanguard, both the number of plans and the number of plan participants has increased six-fold since 2013. In addition to increased coverage, many of the plans adopted by small businesses have new and exciting features that radically improve the retirement readiness of employees.

While higher-paid and older employees are still the most likely to enroll in 401(k) plans, the Vanguard study found that nearly two-thirds of all eligible employees participated in a 401(k) plan in 2017. And, for employees, whose plans offered automatic enrollment, participation rates increased to 83%.  This is compared to a participation rate of 58% for plans with voluntary enrollment.  In addition, the deferral percentage for contributions is also up to 9.7% in 2017, from 9.3% in 2016.  The study also found that many plans are now offering a Roth option.  In fact, the study found that over eighty percent of plans offer the opportunity to make after-tax contributions.  This option is particularly attractive to Gen X and Millennials, because it permits tax-free distributions upon retirement.

The increase in participation and deferral rates in defined contribution plans is good news to RMC.  We have been a global leader in pension administration for over 45 years.  For a long time, we have believed that profit-sharing plans with a 401(k) component have been underutilized in the small business market. Below is a quick sales guide to identifying prospects for a defined contribution or 401(k) plan and the benefits offered:

Ideally Suited For:
  • Smaller employers with younger employees
  • Larger employers
Key Features:
  • Flexible contributions
  • Plans benefit all employees, including rank and file
  • Salary deferral
  • Benefits at retirement based on contributions and investment gains or losses
Key Markets:
  • Younger owners and individuals looking for market exposure
  • Ideal for companies with fluctuating income
Plan Types:
  • Profit Sharing
  • New Comparability
  • Age Weighted
  • 401(k)

RMC Group offers IRS-approved documents, plan implementation, training assistance, and a proprietary online proposal system. We will review qualified retirement plan options with you, and help you determine which plan design works best for your client. Additionally, we will help you evaluate your client’s goals and expectations to formulate a plan that works best for your client. To request a quote or discuss retirement plans, contact RMC Group today at 239.298.8210 or [email protected].