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In Every IssueLeadership Letter — page 1PSCA’s 2021 National Conference is virtual this year, but that is the only difference, the conference will have all the networking, experts, education, and fun that you have come to expect from PSCA National conferences!

Retirement Read(y) — page 9Debt of every kind can hinder employees’ ability to save for retirement, so why the focus specifically on student loan debt?

Plan Sponsor Perspectives — page 10Research consistently shows low use of ESG investments in 401(k) plan lineups, despite its dominance in industry trends — we asked our members why.

Washington Watch — page 20There are several retirement-related provisions in the new COVID-19 relief bill.

Spring 2020 • Vol. 69, No. 1

Financial Wellness2 The Savings Gap

COVID has widened existing gaps in retirement readiness for people of color — plan sponsors can help.By Judy Ward

NQDC Research 6 PSCA’s 2021

Non-Qualified Plan SurveyPSCA’s most recent survey of NQDC plans reports on the 2020 plan-year experience of 123 plans.By Hattie Greenan

NQDC12 Best Ways to Pay

for College (Part 2)Companies can provide employees with two ways of paying for their children’s college tuition — the 529 plan and the NQDC plan.By Timothy Drake and John Sanford

Research16 PSCA’s 63rd

Annual SurveyThough in 2020 retirement savings, among other things, became more complicated, 2019 was a banner year for plans, putting them in good shape for a swift recovery in the future.By Hattie Greenan

https://www.psca.org/

New Members Corporate Member

NSPJ Architects, P.A.Prairie Village, KS Industry: Architecture Contact: Andrea A. Bramson

Panamerican Consultants, Inc.Tuscaloosa, AL Industry: Archaeological Consulting Contact: Stephanie Rymond

Richard Bernstein AdvisorsNew York, NY Industry: Financial Services Barbara Tarbel

Shinko Electric America, Inc.Tempe, AZ Industry: Manufacturing - Semiconductor Packaging / Electronics Contact: Marianne Creed

Changes in member contacts should be sent to [email protected].

Officers

PresidentIra Finn Ryan Specialty Group

President-ElectRobin Hope Megger

Immediate Past PresidentMarjorie F. Mann NextEra Energy, Inc.

Directors

Theresa Belton Central Council Tlingit & Haida Indian Tribes of Alaska

Brandon M. Diersch Microsoft Corporation

Tom Gordon

Annette Grabow Sonepar USA

Mercedes Ikard Disney

Tim Kohn Dimensional Fund Advisors

Stephen W. McCaffrey National Grid USA Service Co., Inc.

Bruce McNeil Leech Tishman Fuscaldo & Lampl LLC

Karin Rettger Principal Resource Group

Michael A. Sasso Portfolio Evaluations, Inc.

Ann Zeibarth Gallup, Inc.

PSCA Leadership Council

PSCA publishes articles by its members in Defined Contribution Insights magazine. If you have an idea for an article of 1,000 to 3,000 words in length, please contact [email protected].

Subscriptions to Defined Contribution Insights magazine are part of PSCA membership, and are also available to non-members for $75.00 per year. Contact PSCA at 703-516-9300 for subscription or membership questions. Defined Contribution Insights is published by the Plan Sponsor Council of America, 4401 N. Fairfax Drive, Suite 600, Arlington, VA 22203. Subscriptions are part of PSCA membership. Opinions expressed are those of the authors. Nothing may be reprinted without the publisher’s permission. Information contained in Defined Contribution Insights is for general education purposes only and should not be relied upon as legal advice. Contact your legal advisor for advice specific to your plan. Copyright ©2021 by the Plan Sponsor Council of America.

Plan Sponsor Council of America • Advocacy, Education, and Insight for America’s Retirement

Certified Plan Sponsor Professionals

Elizabeth AltimoreMG Bryan Equipment Company

Joanne BrownPaperWorks Industries, Inc.

Andrea CampBNP Media, Inc.

Kelley CappucciBurns & McDonnell

Stephanie CarterStar Tribune

Jody CookNIFA

Joy CreelmanMona Electric Group Inc

Melinda CriddleAPG

Mandy CrockettSan Luis Valley Health

Mary DarbyshireEnerpac Tool Group

Cynthia DavisGriswold Industries

George DevinoPolen Capital

Susan DiSilvestreMacro Solutions

Sally DobsonSEW-EURODRIVE

Patricia DulebohnNew York Blood Center dba Innovative Blood Resources

Deborah ElliottFirst Bank of Highland Park

Paula EricksonDelta Dental of Wisconsin

Cynthia FinkeWunderlich-Malec Engineering, Inc.

Debbie FinnHaynes Mechanical Systems

Rebecca FiorettoFirst Bank of Highland Park

Jaime FlemingHESS Construction

Kristen FriesenFirst Guaranty Mortgage Corporation

Jackie GallegoBilzin Sumberg

Paul GarnerPolydeck Screen Corporation

Mary GilbertsonNorthern Plains Contracting, Inc.

Michael GilmartinM.Davis & Sons, Inc.

Laura GomezLonden Insurance Group, Inc

Britt GondrezickOrthopaedic & Spine Center of the Rockies

Britney HammerschmidtCardinal Glass Industries

Nicholas HarbertLockton, Inc

Christine HayashiBeall’s, Inc.

Jackie HirningMDU Resources Group, Inc.

Listing of new CPSP members continued on inside back cover

Spring 2021 1Plan Sponsor Council of America • psca.org

Top Ten Reasons to Attend PSCA’s National ConferenceFrom networking to continuing education to Signature Awards, PSCA’s 2021 (Virtual) National Conference is a must-attend event.By Will Hansen

Leadership Letter

e are only weeks away from the PSCA National Confer-ence. I wish we would be able to network among colleagues

in-person, but the conference will be held virtually this year. I’m confident that our 2022 conference will be held in-person and allow us to celebrate 75 years of the Plan Sponsor Council of America providing education, insights, and advocacy for plan sponsors. But, let’s first talk about why attending the 2021 virtual conference will provide you with valuable takeaways.

A few days ago the idea of “Top 10” lists popped into my head and how the former night show host, David Letter-man, popularized those lists. I thought, why not make a Top 10 list on why you should attend the 2021 PSCA National Conference, virtual edition? Here goes:

Network! Yes, it is virtual, but that doesn’t mean you can’t connect with your counterparts at other companies. The virtual conference platform will provide you with awesome tools to connect and learn from your colleagues across the country.

Breakout Sessions aplenty! We will offer twelve breakout sessions throughout the conference for you to gain insights into the hot topics impacting the retirement industry. The topics range from emergency savings to fiduciary basics to ESG to retirement income (and many more).

Flexibility! We don’t expect you to be in three places at once. Therefore, all the sessions will be recorded and available for you to watch at your leisure at the conclusion of the conference. Attendees will be able to view the sessions on the virtual platform until the end of June.

Continuing Education! If you have the Certified Plan Sponsor Professional credential or certificates from other organizations, like SHRM, you will receive continuing education credits.

Prizes! As an attendee, you will earn points for a variety of activities and the top point recipients will receive valuable prizes!

Future Announcements! We will announce the dates and location for the 2022 PSCA National Conference along with other exciting informa-tion about the celebration of PSCA’s 75th Anniversary. You will not want to miss the announcement!

Mellody Hobson! I’m excited that Mellody Hobson is speaking at our conference. Learn from a barrier- breaking businesswoman and advocate for retirement planning. She will be interviewed by our very own Brian Graff, CEO of the American Retirement Association.

Erin Lowry! Millennials have become the largest generation in the workforce, and it is important

to understand how to best com-municate financial planning to this generation. Erin, a popular author and speaker, is an expert on communicating financial topics to millennials.

Experts! From the Breakout Sessions to the General Sessions, you will hear from experts steeped in knowledge to assist you in administering the retirement plans your company sponsors.

Signature Awards! A virtual awards ceremony is tough (and sometimes awkward if you’ve watched any recent awards shows on TV). Instead of holding an official ceremony, we will highlight the win-ners by showing short clips through-out the conference of the winners talking about the programs they implemented within their retirement plan that enabled them to become Signature Award winners.

I could not call it a Top 11 list, but I do have one more thought. If you are a plan sponsor member, the conference is FREE for you to attend. Please visit psca.org for more information. The con-ference will be primarily held on April 19–20, 2021, with a special pre-session on April 15, 2021. I look forward to seeing you (virtually) in April!

Will Hansen is PSCA’s Executive Director and the Chief Government Affairs Officer for the American Retirement Association.

W

#2

#7

#8

#6

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#4

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2 Spring 2021 Defined Contributions Insights

The Savings GapWhat can plan sponsors do to help bridge the gap in retirement readiness for people of color?By Judy Ward

This article is adapted from the cover story in the Spring 2021 issue of NAPA Net the Magazine, Breaking the Barriers.

Financial Wellness

Many Black and Hispanic families have a starkly different retirement- savings reality than white

families. Median balances for those who have a defined contribution plan account averaged $30,000 for both Black and Hispanic families in 2019, about half the $55,000 median for white families, according to an Employee Benefit Research Institute (EBRI) anal-ysis of data from the Federal Reserve Board’s Survey of Consumer Finances.

Among working family heads, just 48.3 percent of Black people and only about a third (31.8 percent) of Hispanic people were eligible for a defined contribution plan at their workplace, versus 59.6 percent of white people. Participation rates also differ, averaging 70.2 percent for Black family heads and 62.8 percent for Hispanic family heads, compared to 81 percent for white fam-ily heads.

The savings gap for people of color likely has become even worse in the past year, says Chief Diversity and Inclusion Officer Cecilia Stanton Adams of Minneapolis-based Allianz Life Insurance Company of North Amer-ica. “I think that COVID has played a huge role in making these disparities continue to grow,” she says. And with 2020’s renewed reckoning with civil rights issues, she says, “We’re at a point now where we can’t look back; we can’t say that these things aren’t happening. It’s important that we take steps to act

now — we can’t just sit with this for another decade or two.”

Savings “Account”Most prime working-age (age 32– 61) Black and Hispanic families in the United States have no retirement sav-ings, according to economist Monique Morrissey of the Washington, D.C.-based Economic Policy Institute (EPI). Just 32 percent of Hispanic families and 44 percent of Black families had any retirement account savings, compared with 65 percent of white families, based

on Morrissey’s analysis of 2019 Survey of Consumer Finance data.

With the pandemic and economic downturn of the past year, it’s unlikely that those percentages have improved, Morrissey says. “The basic story stands,” she says. “The pandemic’s job disruptions have disproportionately, negatively affected persons of color. It’s safe to say that the average work-ing-age household of color has virtually no benefits outside of Social Security on which to rely in retirement.”

Like many other workers, people of color often don’t have a clear under-


Financial Wellness | The Savings Gap

standing of their retirement savings shortfalls. Fifty-five percent of Amer-icans who identify as people of color believe they are currently saving enough in a retirement account, according to the “2020 Retirement Risk Readiness Study” released by Allianz in September. But the same survey finds that fewer than half say they have any type of retire-ment savings account or assets. “About half of people of color say they’re feeling good about their retirement, but when you dig deeper, you find that there may be some disconnects about their finan-cial situation,” Stanton Adams says.

Cultural beliefs about retirement play a role as well. Luisa Blanco, pro-fessor of public policy at Pepperdine University in Malibu, California, has done in-depth research on planning for retirement among minorities. Many Hispanics, for example, have what she calls a “denial of retirement” attitude toward their working future. “I did qualitative research, and I found that a lot of Latinos say, ‘I will always work; I will work until I die,’” she says. “They say, ‘my parents never talked about retiring.’ Often, the culture of saving and preparing for retirement is not there — it’s just not a social norm.”

It’s important to put retirement savings in the broader context of racial equity challenges, says Joshua Dietch, Boston-based vice president and group manager-retirement thought leadership at T. Rowe Price. “When you look at retirement savings through a race and ethnicity lens, you’re looking pretty far downstream from the source of the inequality,” he says. “There are all these things that tend to influence the outcome. What we see correlated with income is education. What we see cor-related with wealth is home ownership. By the time you get to retirement, your level of education is often reflected not only in how much you’re able to earn, but the employment opportunities available. It is not surprising that we see these things reflected in retirement savings, because we see them reflected in general financial wellness.”

The Coverage ConundrumAnqi Chen, assistant director of savings research at the Center for Retirement Research (CRR) at Boston College, points to two main reasons for the sav-ings gap among people of color. “One is the lower coverage base they have in 401(k) plans, and the other is their lower earnings,” she says. “Only about half of American workers are covered in an employer plan, and typically it is the higher earners who are more likely to have coverage.”

“What we know is that

retirement plan coverage is

lower among three groups:

people who work for smaller

employers, lower-income

employees, and people who

work part time rather than

full time ... and people of color

disproportionately fall into

those three groups.”

Jeffery Brown, Gies College of

Business, University of Illinois

The lack of opportunity to participate in a workplace retirement plan is the most urgent issue to tackle, Chen says. “Looking at uncovered workers, our (CRR) research finds that 74 percent are not covered because there is no retire-ment plan offered at their workplace,” she says. “Another 12 percent do have a plan offered at their place of work, but they don’t qualify to participate. And the remaining 14 percent of uncovered workers are self-employed. So the first step is to get the coverage up.”

In many ways, the realities of today’s retirement system reflect ineq-uitable policies that have been in place in the U.S. employment system for decades, says David Mitchell, director of government and external relations

at the Washington Center for Equita-ble Growth in Washington, D.C. “The evidence shows workers of color face discrimination in the labor market that restricts access to high-quality jobs with good retirement benefits. The lack of access to retirement accounts is a huge problem.”

In recent years, Black and Hispanic workers have seen declines in work-place retirement plan coverage, while white workers actually have seen a slight increase, according to an Urban Institute paper published in October 2020, “How Can Policymakers Close the Racial Gap in Retirement Security?” Coverage for Black workers declined from 56 percent to 52 percent between 1998 and 2016, the paper says, and from 46 percent to 37 percent for Hispanic workers. Coverage for white workers inched up in the same time period, from 58 percent to 60 percent.

“We know that most retirement savings is done through the workplace, so if people don’t have the opportu-nity to save for retirement through their workplace, they’re probably not going to save,” says Richard Johnson, director of the Program on Retirement Policy at the Washington, D.C.-based Urban Institute, and the paper’s author. “Savings tend to accumulate when they’re on automatic pilot. If you have a workplace retirement plan and the money is taken out of your paycheck each period, you don’t have to think about saving for retirement — it just happens. If you don’t have a workplace retirement plan, you have to deliber-ately think about it every time. With everything else going on, it’s hard for people to exercise that discipline.”

Jeffrey Brown, dean of the Gies College of Business at the University of Illinois Urbana-Champaign, sees the coverage shortfall as a result of a deeper set of issues related to employ-ment. “What we know is that retire-ment plan coverage is lower among three groups: people who work for smaller employers, lower-income employees, and people who work part



time rather than full time,” he says. “And people of color disproportion-ately fall into those three groups.”

As an economist, Brown says, he likes open, competitive markets. “If there’s a market solution to something, I want to let the market work. But the ‘market,’ in this case, is what led to this situation: We’ve developed a set of institutions and structures that have disadvantaged some groups,” he says. “And I don’t think we can just take our hands off the wheel and assume that the situation will correct itself. To over-come it, I think we have to rethink how we do this. It’s a series of policy choices that led to where we are today, and if we don’t like it, it likely will take some changes in policies to fix it.”

A Policy Fix: An Employer Mandate?The savings gap is getting more atten-tion in Washington now, EBRI Senior Research Associate Craig Copeland says. “With the new (Biden) administra-tion, there certainly is more discussion about it, and more examination of what

is causing it,” he says. “I do think there is a better recognition of the issues at the policy level, and at the employer level, and there is a much broader discussion now about how to address it. If you go back even two years ago, you would not have seen that.”

“Eighty million people have

accumulated $9 trillion

of wealth in those plans.

Is that a failure? What we need

to do is to create the ability

for more people to get access

to that, not dump the whole

thing and start over…"

Momentum appears to be building in Congress for legislation requir-ing employers that have more than a specified number of employees to offer them access to a retirement plan. “Access is the place that you have to start,” Dietch says. “All the other con-

siderations come into play after people have access to a retirement savings plan, and it will do a world of good to get people on that path.”

Creating greater access for savings through existing plan structures is a better option than eliminating the employer-based plan system in favor of a single, federal government-run plan, Dietch believes. “Every so often, I see articles that say the 401(k) system is broken, and needs to be scrapped,” he says. “Eighty million people have accu-mulated $9 trillion of wealth in those plans. Is that a failure? What we need to do is to create the ability for more people to get access to that, not dump the whole thing and start over. Do we want to start over again, or do we want to build on what we know works?”

Morrissey says the Economic Policy Institute’s first preference to help people of color with their retirement is to expand Social Security benefits, on which many heavily depend. “But we have been very pleased that people who are not neces-sarily there yet are now willing to con-sider an employer mandate,” she says. “There have been some very centrist groups talking about it that, in the past, never would have touched it. A decade ago, there would have been zero chance of it. Now, we’re seeing people converge on a middle ground, to expand access to employer plans.”

Just offering access to a plan won’t be enough, Blanco says. “You still need behavioral nudges. Research has shown that when it comes to retirement sav-ings, one of the most effective nudges is automatic enrollment. Automatic enrollment is definitely the way to go,” she says. Even if these new employer plans have modest initial deferral rates, she says, they would succeed in getting people in the habit of saving for retire-ment. As she says, “The issue is, how do we get people to start saving for retirement on a regular basis?”

Previous experience confirms that usually, the clear majority of those auto-enrolled in a plan con-tinue to save, Chen says. “There’s a



lot of research on the behavioral side showing that default options are really important: defaulting people into participating in a plan, and having a diversified default investment. That’s because default options are ‘sticky,’” she says. “So if you automatically enroll people and give them the option to opt out, most will stay in, and that will help them start to increase their retirement savings.”

Five Ways Plan Sponsors Can HelpFor employers that already have a retirement plan, here are five sugges-tions to help:

• Utilize plan design to assist under-savers: “If there’s something employers could do to fix this that’s cheap and easy, I like to think that they would have done it already,” Brown says. “But if I were leading a company and were really concerned about issues of equity and access in my workforce, if I didn’t already have automatic enrollment in my plan, I would do it.” And employ-ers looking at plan design through a lens of diversity and inclusion should consider moving to imme-diate participation eligibility and shorter vesting. “In some cases, I wouldn’t be surprised if that would have a big impact,” he says.

• Use demographic data to target messages: It’s helpful for employers to break down data on their employ-ees’ retirement-savings behavior by demographics including ethnic backgrounds, Stanton Adams says. “How many employees are actually using this benefit, and are certain populations more likely to use it than others?” she says. “Once you know that, there is a lot of opportu-nity to help people figure out their situation, and some easy steps to take to improve it. Sometimes peo-ple don’t know that they could start by having even $15 come out of their paycheck for retirement savings,

and that comes out pre-tax, so they don’t feel it as much. Then they can increase their deferral by 1 percent (of their pay) the next year, then another 1 percent the next year, and they’ll start to see real progress in how much they have saved — which is motivating for anyone.”

“… if I were leading a company

and were really concerned

about issues of equity

and access in my workforce,

if I didn’t already have

automatic enrollment

in my plan, I would do it.”

• Offer financial literacy basics: Employers also could help by facilitating more financial literacy education, Copeland says, to teach their employees about basics such as how to budget, and how to pay off credit card debt. “The reason that a lot of people of color are not saving for retirement now is because their current finances are not in order,” he says. An analy-sis published in a December 2020 EBRI Issue Brief found that families with African American or Hispanic heads have much higher debt-to-asset ratios than families with white heads. “And these families are more likely to have credit card debt or other consumer debt, versus white families that are more likely to have mortgage debt,” he adds.

• Facilitate emergency savings: The inability to save for retirement and the lack of rainy-day savings are intertwined issues that need to be looked at holistically, Mitchell says. It would help if more employers were to adopt the “sidecar” savings account concept, and allow their employees to defer money for emergency savings, he thinks. “To ask lower-wage workers to save for

when they are 70 years old, but not to have enough on hand to fix their car if it breaks down, does not seem logical,” he says. “It is reasonable for folks to build up an emergency savings account at the same time they are saving for the long term.” Facilitating emergency savings “is not going to solve the whole sav-ings issue in one fell swoop, but it would make a meaningful differ-ence,” he adds.

• Make education culturally sensitive: There’s a lot of work to be done in making retirement-savings education more culturally sensitive to people of color, and those who don’t speak English as their first language, Blanco says. “For them, the informational barriers are huge,” she says. “A lot of the information about retirement plans that is out there is not in their language or culturally accessible, and it’s complicated. For a lot of them it seems like, ‘Oh, saving for retire-ment? I can’t do it.’ It’s very import-ant for these education programs to be culturally and linguistically appropriate, if we want to truly address the retirement-savings gap.”

Judy Ward is a freelance writer and frequent contributor to NAPA Net The Magazine.




PSCA’s 2021 Non-Qualified Plan SurveyPSCA’s most recent NQDC Plan survey shows an increased focus on education and engagement.By Hattie Greenan

NQDC Research

Non-qualified deferred compensation (NQDC) plans have long provided employers a unique hiring

incentive and retention tool for key employees who, in turn, value the unique tax preferences and wealth accumulation opportunities available through these programs.

NQDC plan designs may vary sig-nificantly in terms of objectives, eligibil-ity, and provisions. Many are designed to offer a comparable level of value where the tax code limits tax-qualified plans whereas others are primarily focused on providing access to unique tax preferences and wealth accumula-tion opportunities. Most importantly, NQDC plans provide employers flexi-bility in focus and funding not typically found with programs subject to ERISA. Some employers embrace designs that specifically offset contribution and benefit limits on tax-qualified retire-ment savings plans and defined benefit pension plans. Others, so-called “top hat” plans, limit eligibility to a select group of management or highly-com-pensated employees who may elect to defer the receipt of compensation until separation. In other NQDC plans, indi-viduals may, within certain limits, time the receipt of compensation to a future year where they may be in a lower federal and/or state marginal income tax bracket. In a variety of ways, NQDC plans can differentiate the employment value proposition.

The Plan Sponsor Council of Amer-ica conducted a survey of nonqualified deferred plan sponsors in late 2020 and received 134 responses from a diverse group of employers, including 123

organizations that currently sponsor an account-balance NQDC plan for executives.

Asked why they offer NQDC benefits, plan sponsor respondents

1. On average, 6.1 percent of total employees are eligible to participate in respondent NQDC plans.

2. Position/job title remains the most common eligibility criteria, relied upon in 64.8 percent of plans.

3. Two-thirds of employees eligible for these programs participate, defer-ring an average of 10 percent of base pay and 25 percent of bonus pay.

4. The most common employer contribution formula (30 percent of plans) is a restoration match designed to fill the gap from the match excluded from the 401(k) plan due to IRS limits.

5. Three-fourths of plans set funds aside to cover future obligations. Of those that do, more than 80 percent of plans put those funds in a Rabbi trust.

6. More than half of organizations use the same investment options in the NQDC plan as in their qualified plan, and more then 60 percent use the same recordkeeper for both plans.

7. Half of plans allow in-service distributions, though nearly 40 percent of respondents indicated 10 percent or fewer participants took one in 2020 and another third indicated no participants took one during that period.

8. More than 60 percent of plans allow emergency withdrawals, but the vast majority (83.3 percent) of organizations report that none of their partici-pants took one in 2020.

9. More than 70 percent of organizations provide NQDC-specific plan education to eligible employees.

10. Nearly 40 percent of organizations provide investment advice regarding their NQDC plan.

Exhibit 1: Top 10 Survey Highlights


NQDC Research | PSCA’s 2021 Non-Qualified Plan Survey

were most likely to respond “have a competitive benefits package” followed by “help employees accumulate assets” as a strong second, and “retain eligible employees” rounding out the top three. The largest employers were particu-larly likely to rate competitive benefits package as the primary reason.

Following is a summary of the results.

Employee EligibilityMost employers restrict NQDC plan access to “top-hat” employees. An average of 6.1 percent of total employees were eligible to participate in respon-dent plans in 2020. See Exhibit 2. The most common parameter used to deter-mine eligibility is job title/position, by far (64.8 percent of plans). See Exhibit 3.

ParticipationMost plans (85.4 percent) allow partici-pants to contribute to the plan. Of those that do, nearly all plans allow base salary to be deferred (93.5 percent), nearly 90 percent allow bonus pay, and ten percent allow commissions.

On average, two-thirds of eligible employees participate in the NQDC plan, up from 53.4 percent in 2018. As expected, organizations that provide contributions experience much higher rates of participation relative to organi-zations with no employer contribution.

Participants contributed an average of 10.5 percent of base salary and an average of 24.2 percent of bonus pay to their NQDC plan in 2020. The aver-age NQDC plan balance in 2020 was $501,079.

Employer ContributionsMore than half of respondent plans provide an employer matching contri-bution, the most common type being a “restoration” match to fill in the gap left by the “missed” match in the 401(k) or 403(b) plan(s) due to tax code or plan limits (27.5 percent). A third of plans provide for a discretionary employer contribution not based on employee contributions, and ten percent make a fixed non-matching contribution to all eligible employees. See Exhibit 4.

Immediate vesting for employer contributions is available at a third of companies, though it is used at nearly 45 percent of large organizations (5,000 or more employees).

Financing Methods and Investment OptionsThree-fourths of respondent plans set money aside to meet future obligations. Of those that do, more than 80 percent set it aside in a Rabbi Trust. Respon-dent plans indicated that, on average, approximately 93 percent of future benefit obligations have been set aside.

Nearly 60 percent of plans have the same investment options in their

Exhibit 2: Percentage of Employees Eligible To Participate in the NQDC Plan

Year

Percentage Eligible 2016 2017 2018 2020

Average 9.4% 8.6% 5.2% 6.1%

Median 4.4% 4.1% 4.0% 4.4%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Other

Minimum Total Compensation

Committee Approval

Minimum Base Salary

IRS Limits

Job Title/Position 64.8%

17.2%

21.3%

19.7%

16.4%

12.3%

Parameter

Percentage of Plans

Exhibit 3. Parameters Used to Determine Eligibility



NQDC plan as their qualified DC plan. Twenty-three percent of plans that offer company stock allow it as an option in the NQDC plan.

Nearly 90 percent of plans base returns on specific investment options to track performance of participant con-tributions and ten percent use a fixed market rate.

DistributionsHalf of plans offer participants the opportunity to make “in-service” distri-bution elections and 60.3 percent allow for emergency withdrawals.

More than a third of plans indicated that no participants took an in-service distribution in 2020, whereas more than 80 percent indicated that no partici-pants took an emergency withdrawal. Nearly 40 percent of plans stated that fewer than ten percent of participants took an in-service withdrawal, and 13.9 percent state between ten and twenty percent did so.

Most plans allow for distribu-tions upon separation of service (92.6 percent) and nearly half (44.3 percent) allow for distributions upon a change in control. Nearly all NQDC plans allow for lump sum distributions, and nearly three-fourths allow annual pay-ments. Ten percent provide annuities as a distribution option.

Plan AdministrationMost plan sponsors use the services of an outside firm as a recordkeeper for their plan (87.8 percent), and 61.2 percent use the same recordkeeper for the NQDC plan as administer their qualified retirement plan.

Most plans allow online transac-tions for NQDC plans — 80 percent of organizations enroll participants into the plan online, and more than 90 percent allow online balance inquiries and beneficiary changes. Distributions and withdrawals are less likely to be allowed online and require internal benefits staff to process them.

Nearly half of plans allow employ-ees to enroll in the plan immediately after hire and nearly half only allow enrollment in the plan once a year.

A quarter of plans have a bad actor forfeiture clause, and 11.5 percent have a non-compete provision that forfeits the NQDC benefit if the employee leaves to work for a competitor.

Participant EducationMore than 70 percent of employers say they provide specific NQDC plan edu-cation to their eligible participants.

The top reasons for providing education are to increase appreciation for the benefits provided by the plan (38.3 percent), increase participation in the plan (26.7 percent), and to provide retirement planning (21.7 percent).

The survey is available for purchase at: https://www.psca.org/research/ nqdc/2021AR

Hattie Greenan is the Director of Research and Communications for PSCA.

NQDC Research | PSCA’s 2021 Non-Qualified Plan Survey

0% 5% 10% 15% 20% 25% 30% 35%

None

Other

Discretionary Non-Matching Contribution

Fixed Non-Matching Contribution to all Eligible Employees

Age or Service Based Non-Matching Contribution

Graded/Tiered Match

Restoration Match

Fixed Match 21.7%

27.5%

5.0%

10.8%

10.0%

32.5%

1.7%

25.8%

Contribution Type

Percentage of Plans

Exhibit 4. Types of Employer Contributions Allowed in the Plan

https://www.psca.org/research/nqdc/2021AR



Student loan debt — or more precisely, the forgiveness of some part of it — has domi-nated the headlines of late,

but it’s been on the minds of retirement plan sponsors for a while now. The question is — why?

While the issue is hardly new, the connection between retirement savings and student debt really came to the fore in mid-2018 with the announcement by Abbott Laboratories of a new benefit designed to “address student debt.” Once word of that program got out, it seemed that every employer in Amer-ica wanted to know more about this program, and what they needed to do in order to offer one. And if that focus has dissipated some in the wake of the COVID pandemic, it’s still not far from the focus of many.

Some argue that employers ben-efit from that education, and there’s something to be said for that. But what about those workers with identical aca-demic credentials who made financial sacrifices on their own to obtain their education without debt, who either chose more affordable schools, or who chose to work while pursuing their degrees — workers who did so without the support or encouragement of the employer match towards college loan repayments?

I can understand and appreciate the financial tradeoffs that student debt imposes — that those who might

otherwise contribute to a 401(k) plan find it impossible, or perhaps just impractical, to do so on top of that obligation. But, education aside, how is that different from the tradeoffs necessitated by a mortgage, a car pay-ment, or even the routine costs of everyday living? Even when you discount how much of the college debt “problem” has been racked up by households of higher income, or for the purpose of obtaining a degree that positions indi-viduals for relatively high-paying jobs in engineering, medicine, or the law (and those are real inequities) — what’s the rationale for, in effect, subsidizing, the timing of that particular financial decision over any other?

Don’t get me wrong — I feel for the kids who come out of college in a tough job market, some with a debt load as large as my first house (though, in fairness, my paycheck at that time was commensurately smaller). I’ve no doubt that it’s an obligation that likely dissuades individuals from saving for retirement, and yes, they may be missing out on compounded savings and the employer match as a result. But then so does the choice to pay rent, or to buy a car when your old one dies. Going to college, choosing a college, and ultimately the obligation of paying for those decisions, are individual

choices, however badly counseled they might have been at the time.

It is now “trendy” to talk about student debt as a retirement “issue,” and employers are, of course, free to construct their benefit programs in ways that allow them to attract and retain workers in the ways that make sense, and to take advantage of the tax laws to do so. Yet, for all the attention it has drawn of late, we should remember that it’s debt — not just student debt — that really undermines retirement savings and security.

In that sense, there’s nothing really “special” about student debt — beyond our individual choice(s) to treat it so.

Nevin E. Adams, JD, is the Chief Content Officer for the American Retirement Association.

What’s So Special About College Debt?Student loan debt repayment programs are increasingly a consideration in employer benefit programs.By Nevin Adams

Retirement Read(y)



ESG Investing: A Plan Sponsor ViewESG investing is a hot topic, yet plan sponsors remain hesitant to include it in their line-ups.By Tobi Davis

Plan Sponsor Perspectives

here is a lot of discussion in the industry about the inclusion of ESG (Environmental, Social, Governance) investments in

401(k) plan lineups, yet the uptake by plan sponsors remains very low. For this issue of Plan Sponsor Perspectives, we asked plan sponsors the following: Do you offer any ESG investments in your retirement plans and if not, have you considered offering them? Why or why not? Do you have specific concerns about including them in your lineup?

The responses overwhelmingly show that plan sponsors are not offer-ing ESG investments, which mirrors the findings from PSCA’s Annual Survey of Profit Sharing and 401(k) Plans showing that about three percent of plans offer one — and this has been relatively con-sistent the last five years. See Exhibit 1.

Reasons Why (Not)The reasons why sponsors do not offer an ESG investment in their lineup ranged from those that haven’t discussed it to those that looked into it and decided not to offer them. One plan sponsor noted, “We currently do not offer any ESG investment options. At this time, it’s not an option that is under consideration. We have not had an interest from our participants in this option. We are focused on increasing enrollment in the plan and that will continue to be our focus throughout 2021.”

Another shared, “We do not offer ESG in our lineup and although the Committee is aware of the changing regulations, given our mostly man-ufacturing population, as well as the additional fiduciary oversight of those

funds, it does not make sense for our plans or fit into our IPS.”

A mid-size employer explained their reasoning for not including one as due to a lack of standardized evaluation metrics: “We do not currently offer any ESG investments in our retirement plan nor has there been any discussion to add them right now. The primary reason that this is the case for our organization is due to the fact that there currently is not a standardized approach to the types and calculation of different ESG metrics. Without a set of standardized metrics, it becomes very challenging to understand com-plete risks and opportunities of various ESG investments.”

However, there are plan sponsors whose participants are asking for ESG investments, but the concern over

T

Exhibit 1: Availability of ESG Funds in 401(k) Plan Lineups Over Time

Source: PSCA’s Annual Survey of Profit Sharing and 401(k) Plans

0%

1.0%

2.0%

3.0%

4.0%

20192018201720162015Year

Percentageof Plans

4.0%

2.9%2.6%

2.4%

3.9%


fiduciary risk prevents them from being added to the lineup. “We do not currently have ESG investments in our retirement plans. We are interested in ESG investments because our employ-ees are asking for them. The latest reg-ulations don’t specifically prohibit the inclusion of ESG investments, but they make it extremely hard to actually include an ESG investment and still demonstrate solid fiduciary practices. That is a risk we are not willing to take on, so that effectively eliminates ESG investments for us, until the regula-tions change.”

Neither Yes nor NoSome plan sponsors don’t specifically include or exclude ESG investments and one noted, “The Retirement Committee has determined that the fund selection criteria should be based on obtaining the best returns in a diversified portfolio, while taking volatility into account. ESG funds are not excluded; if an ESG fund ranks #1 based upon the selection criteria, it will be added to the fund line up.” Another offered this approach, “We have had ESG discussions in our

Investment Committee meetings. We have chosen not to have a specific ESG investment option. Rather, we ensure our investment lineup includes large asset managers who integrate ESG factors but do not sacrifice investment returns or increase risk in order to meet ESG goals unrelated to the par-ticipant’s financial interests.”

Reasons ForFinally, there are a few plans that do include ESG investments, and one plan sponsor shared, “We do offer an ESG fund that was added to our plan approximately 10 years ago. Like all of our investments, it is subject to meeting the performance and other criteria of our IPS. As guidance began to be issued, we reviewed and decided it would be imprudent to remove it con-sidering it was/is meeting IPS criteria.”

ConclusionWe had expected guidance from the DOL regarding ESG investments last summer, but the final rule fell short and removed references to ESG, asserting a lack of a precise or generally accepted

definition of ESG. The DOL stated that the purpose of the rule was to set forth a regulatory structure to assist ERISA fiduciaries in navigating ESG investment trends and to “separate the legitimate use of risk-return factors from inappropriate investments that sacrifice investment return, increase costs, or assume additional investment risk to promote non-pecuniary benefits or objectives.” One of President Biden’s early executive orders included an order to review this rule. On March 10th, the DOL stated that until it publishes further guidance, it will not enforce compliance with the rule.

As there is a lack of clarity regarding ESG in Washington, it is not surpris-ing that plan sponsors are hesitant to add them to their lineups. Perhaps with some clarity in the regulations and some fiduciary protection for plan sponsors, ESG investments will become more common in defined contribution plans. For now, plan sponsors will have to decide for themselves whether the risks are worth the possible good will with their participants who want to embrace ESG investing.

Tobi Davis is PSCA’s Director of Operations.

Plan Sponsor Perspectives | ESG Investing: A Plan Sponsor View

PSCA’s Annual Survey provides the most comprehensive, unbiased DC plan benchmarking data. Find out what other plans are doing to ensure your plan remains a competitive, best-in-class benefit.

Data includes, but is not limited to:• Participation Rates and Average Deferral Rates • Company Contribution Formulas and Amounts • Investment Funds Available and Allocation of Assets • Investment Monitoring Practices • Automatic Plan Features • Plan Loans and Hardship Withdrawals • Participant Education Trends • Other Plan Administration Practices

The survey is available for purchase online at psca.org/research/401k/63rdAR

PSCA’s 63rd Annual Survey of Profit Sharing and 401(k) Plans


https://www.psca.org/research/401k/63rdAR


https://www.dol.gov/sites/dolgov/files/ebsa/laws-and-regulations/laws/erisa/statement-on-enforcement-of-final-rules-on-esg-investments-and-proxy-voting.pdf


ith the cost of education rising at an unprecedented rate, families need to start planning as early as possi-

ble. Since Congress passed the Small Business Job Protection Act in 1996, the 529 plan has become a staple for American families to save for their children’s education. 529 plans have changed over the years and are even more flexible post-2017 Tax Reform. Not only can 529 plans be used for col-lege education, they can also be used for K–12 education. In this portion of the article, we layout the benefits of a 529 plan and why they can be an effec-tive college savings solution.

529 plans were designed for the sole purpose of educational savings and as such have several advantages that other savings plans do not.

529 Plan BenefitsOne of the greatest advantages of a 529 plan is its accessibility. A 529 plan can be established for almost anyone. For example, a grandparent, aunt, cousin, friend, or even a neighbor can open a 529 plan for the benefit of another. 529 plans allow an individual to gift $15,000 (indexed to inflation) to as many individuals as they choose each year, free from federal gift taxes if no additional taxable gifts to the benefi-ciary in that year were made. You can also accelerate your gifting schedule by electing to make a lump-sum

contribution of $75,000 to a 529 plan in the first year of a five-year period ($150,000 for a married couple). Most often these plans are set up by grand-parents because they want to make sure their grandchildren never have to worry about education. Grandparents like 529 plans because of the plan’s simplicity, purpose, and ability to reduce estate asset tax liability. A con-tribution to a 529 plan is considered a completed gift (thereby, reducing estate assets), even though the account owner, not the beneficiary, maintains control over the money while it is in the account. Grandparents with many grandchildren can move a significant amount of their assets out of their estate to fund the education of future generations. For example, grandpar-ents with four grandchildren, and depending on their ages, may be able to contribute the plan’s maximum ($300,000, varies by state) before each grandchild attends college and poten-tially move $1.2 million out of their estate. In our current climate, estate taxes are constantly being evaluated by Congress. Currently, the estate tax exemption is roughly $23.1M per cou-ple. It is possible the estate tax exemp-tion will be lowered to $6M under the new administration. 529 plans are an effective and easy way to move money out of your estate and still have the money under your control and benefit your family.

How does a 529 plan work?A 529 plan is funded with after-tax dollars. In most cases, depending on your state of residency, these plans have no income or age restrictions. Each state-sponsored plan has varying maximum contribution standards, but the majority allow up to $300,000. Unlike other savings accounts, such as a custodial account, an unusual advan-tage of 529 plans is that the owner of the account is always the controller. This means not only does the owner make the decision on how the money is invested and what strategy to use, they also have all the decision power when it comes to how the money is spent.

As explained above, the initial investment in a 529 plan is made with after-tax dollars. This is a great advan-tage to the owner and the beneficiary. If the funds are used for “qualified education expenses,” then no federal income taxes are owed on the distribu-tions, including the earnings from the investments. These qualified expenses include tuition, fees, books, supplies, study equipment (computer), and room and board for a full-time student. Additionally, if the child does not go to a four-year university, these plans can be used for any vocational training program or junior college. Before the 2017 Tax Reform, a 529 plan could only be used for college expenses. However, now these plans can be used for to pay for tuition and other expenses for

Best Ways to Pay for College (Part 2)Both 529 plans and 409A plans can be used to pay for college.By Timothy Drake and John Sanford for PSCA’s NQDC Committee

In the Winter 2020 Issue of “Defined Contribution Insights,” we discussed how non-qualified deferred compensation plans can be used to save for college educations. In part 2 of this topic, we discuss 529 plans and the differences between them and NQDC plans in paying for college.

NQDC

W

https://www.psca.org/insights/winter-2020-full-issue


grades K–12. For parents who want to send their children to private school, this is a wonderful additional feature of these plans.

Contingencies and FlexibilityA question we often get, and as described in part 1, is what happens if my child gets an athletic or academic scholarship and this money is not needed? The great news is that 529 plans are highly flexible! The owner of the account can change a beneficiary at any time for no stated reason. This means that if one of your children gets a scholarship, the account can be trans-ferred to the next child.

Let’s say you have very athletically- gifted children and both of your children get full ride scholarships. The next question is: what happens to the account that has over $300,000 for both children? There are multiple ways around this situation. 529 plans are very flexible with who the plans can be transferred to. The IRS has a list on their website explaining who these

plans can be transferred to — even first cousins qualify. The owner of the plan can either keep it for the next genera-tion of children, or they can transfer it to a distant family member.

However, just because the benefi-ciaries of the plan got a scholarship for their undergraduate studies, we advise our clients to not change anything on the plan for several years. Our reason-ing is that these plans can be used for any graduate or vocational program. If the recipient of these plans decides to go to nursing school or get an MBA, then it would be a shame if the plan was surrendered too quickly and the student must take out loans for their graduate studies.

Lastly, 529 plans can be used to pay off student debt. Keeping with this example of having a couple of the grandkids getting scholarships, let’s say that one of the four grandkids uses their entire 529 plan balance and must take out additional student loans. Two of the other grandkids in the family received scholarships, and there are two untouched plans. The grandpar-

ents can transfer the beneficiary to the child who has student loans, and with the passing of the SECURE Act, up to $10,000 can be used to towards the loans. This is an underuti lized option that most families do not take advantage of but state laws should be considered before implementing.

In some cases, there is a rare situation where there are no more educational needs, and the owners want to take the money out of the 529 plan. Since the beneficiaries received tax-free scholar-ships, the owner of the 529 plan can take out the equal amount of the scholarship from the plan penalty-free, but will have to pay income tax on the earnings. For example, there is $150,000 in a 529 plan, and one of the children receives a full ride scholarship to Notre Dame. The amount of the Notre Dame scholarship is $200,000 therefore, $150,000 may be withdrawn penalty-free but subject to income taxes on earnings.

Now for the worst-case scenario: every child gets a scholarship and there are no more educational needs in the immediate or extended family. What

NQDC | Best Ways to Pay for College (Part 2)

Exhibit 1: Typical 529 Plan Development

Exhibit 2: Downsides of a 529 Plan

Parents, grandparents, or any tax-paying adult opens a 529 Plan Account

Money is withdrawn tax free for education and qualified expenses

The net worth in the account grows tax free

Like any other investment account, there is market risk

You must use the money for education and qualified expenses, or could face

a hefty penalty

These plans have limited investment options unlike a normal brokerage account

that has unlimited options




happens to these plans? Depending on what state you live in, the tax rules will be a little different. However, there are some rules that are consistent through all states. The money you put in you can take out tax free. If you put $300,000 into a plan, you get that money out with no penalties and no tax. That initial investment was paid for with after-tax dollars and it will not be taxed a second time. The gains, how-ever, will be taxable as ordinary income by the federal government and in states that have a state income tax. In some cases, there can also be a 10 percent penalty for any gains that you take out. Again, this is the worst-case scenario, and because the plans are so flexible, it is one that we do not see often.

ConclusionIn conclusion, 529 plans were created to give children the best education possi-ble. Whether it is used as a vehicle for parents to fund a monthly amount over multiple years or for grandparents to fund the entire plan with one big check, these funds are used for the purpose of educating the next generation. The flexibility of these plans make it easy to change beneficiaries and to fit families’ needs. However, like any other tool, they are not perfect. We get to know our clients and their situations before recommending a 529 plan or any other savings tool. Before any decision is made, we highly suggest that you talk to your personal financial professional and decide what is best for your family.

The goal of this article was to exam-ine and compare 409A DCPs to 529

plans. One of the greatest advantages of a 529 plan is that any person over the age of 18, who pays taxes in the United States, can open one whereas only highly-compensated individuals can participate in 409A DCPs, and only if their companies offer them. When it comes to most Americans, 529 plans are not only the best and most tax-efficient way to save for college; they are the only option for that specific purpose. 529 plans can be an integral part of a comprehensive financial plan.

John Sanford is Principal at Mullin Barens Sanford Financial & Insurance Services and a member of PSCA’s Nonqualified Deferred Compensation Committee.

Timothy Drake is Director of Wealth Management at Chamberlin Group.

409A DCP 529 Savings plan

Objectives

Company-provided benefit to highly-compensated employees or a select group of management — many of whom may be limited in other pre-tax savings plans, such as 401(k)s or Individual Retirement Accounts (IRAs).

Highly flexible in design and can meet a variety of corporate retention and motivation objectives.

An education savings plan used by parents, grandparents, or friends that have many tax benefits to help pay for education starting as early as primary school and ending with a Ph.D. or even medical school.

Eligibility

Most company structures may offer a 409A plan. Eligibility must be reserved for highly-compensated employees or select group of management, which is generally fewer than 10 percent of employees.

Anyone over the age of 18 may open a 529 Savings plan. Others may also contribute to the plan (parents, grandparents, etc.)

Contributions

Pre-tax deferral of cash compensation from salary, bonus, and other incentives.

Company contributions to make up for match limits in a 401(k) or to motivate for achievement of specific actions are also popular.

After-tax. Some states may allow for a small amount of state income tax deduction.

Earnings Tax-deferred growth. Tax-deferred growth.

Investment Strategy

Many investment options are available. Typically, a menu looks similar to what can be found in a 401(k) plan. Fixed rates with minimum crediting amounts may also be available.

State-specific investment options. Some offer enrollment-year investment portfolios that shift the investment mix as the child approaches college age.

Exhibit 3: Comparison of a 409A DCP and 529 Savings Plan



409A DCP 529 Savings plan

FeesSome companies may pass along plan cost to participants whereas others do not. There are also typical fund management fees.

Fees may include in-state vs. out-of-state fees, account maintenance fees, enrollment application fees, and management fees, annual account fees, typical fund management fees.

Usability

Company you work for must offer a plan.

Must be employed, so not beneficial for retirees.

Annual election in advance of compensation being earned.

No compensation deferral limits except as provided by the plan design.

Typical design allows deferrals of up to 50 percent of salary and 100 percent of bonus/cash incentives.

Easy-to-use modern websites versus extensive paperwork.

Retirees/grandparents can set up plans for grandchildren.

Early Withdrawal

Permitted only upon unforeseeable emergency or penalties may apply. However, a short-term deferral is allowed so an early withdrawal is made only if money is needed before it is scheduled to be paid.

Ten percent penalty if funds are not used for qualified education expenses

Distributions

Several accounts can be set up to meet a variety of short term, mid-term, or long term needs.

Typically, distributions can be paid in a lump sum or over a period of years.

Specific future date or event (like separation from service, disability, or death).

Taxed as ordinary income and no restriction on how the funds are used.

Distributions may be postponed into the future (minimum of 5 years out) with advanced notice of the change at least 12 months before the original scheduled payment date.

Based on the above rule, future date distributions targeted for college education can be moved into another account — including college for another child, home purchase, vacation, separation from service, or retirement.

Tax free if used for qualified education expenses including tuition and fees.

Beneficiary is easily changed with limitations.

Security General credit risk of company providing the 409A DCP.

Risk

Investment risks — investment returns are not guaranteed although fixed rates may be available.

Financial risks — company bankruptcy and insolvency, subject to claims of general creditors.

Distribution limitations — not portable to another savings plan.

Twenty percent penalties for violations, such as unscheduled withdrawals.

Investment Risks — investment returns are not guaranteed.

Use of funds is restricted to list of educational expenses.

Beneficiary is easily changed with limitations.

Financial Aid Potential beneficial effects, such as reducing current income.

Can be used in conjunction with financial aid.



PSCA’s 63rd Annual Survey2019 was another record year for retirement plan savings.By Hattie Greenan

Research

Last year was challenging in so many ways and companies faced unprecedented challenges. According to three snapshot

surveys PSCA conducted, though some segments of the industry were impacted more than others, most com-panies did not make changes to their retirement plans in 2020. This is good news for the retirement security of mil-lions of Americans since, as the results of PSCA’s 63rd Annual Survey of Profit Sharing and 401(k) Plans shows, 2019 was a good year for retirement plans. More employees participated in plans than ever before (more than 90 percent of eligible employees), more partici-pants contributed to the plan than ever before (87.3 percent, a jump from 2018 levels), and companies contributed an average of 5.3 percent of gross annual pay to participants, continuing the slow steady increase in contributions we have seen the last few years.

On the plan design side, a couple of trends that we thought may be leveling off after a few years of relatively little increases, made big jumps in 2019. Three quarters of plans now offer Roth after-tax contributions, up from 69.1 percent in 2018 and 69.6 percent in 2017. Eighty percent of plans now include a target-date fund option in their invest-ment lineups, up from 68.6 percent in 2018 and 70.6 percent in 2017.

Other trends we keep hearing about in the industry have still not seen much pickup, notably in terms of the

investment lineup. The inclusion of in-plan annuities remains at fewer than 10 percent of plans and has for the last several years. Fewer than three percent of plans include an ESG/SRI fund in the investment lineup, despite the wide-spread belief that this is something that participants want.

Top Ten Survey Highlights: 1. Eligibility: For the first time, the

percentage of eligible participants with an account balance rose above 90 percent.

2. Participant Contributions: Most of those with balances contributed to the plan in 2019 — 87.3 percent of eligible employees contributed to the plan in 2019, up from 84.2 in 2018, and marking another all-time high.

3. Roth: Roth contributions are now permitted in three-fourths of plans, up from 69.1 percent in 2018.

4. Company Contributions: Compa-nies contributed a record average of 5.3 percent of gross annual payroll in 2019, up from 5.2 percent in 2018 and 5.1 percent in 2017.

5. Automatic Deferrals: More plans are automatically deferring partic-ipants at higher rates (above the traditional three percent). Nearly one-in-in ten target automatic deferral increases at “under contrib-uting” participants.

6. Target-Dates: Eighty percent of plans offer a target-date fund in the line-up, up from 68.6 percent in 2018.

7. Investment Advisors: Seventy percent of plans use an investment advisor for the plan; one-third of plans offer investment advice to participants, and a quarter of participants with that access take advantage.

8. Professionally Managed Accounts: Forty percent of plans now offer a professionally managed alternative to participants, up from 36.3 percent in 2018.

9. Lifetime Income: More than 40 per-cent of plans now provide lifetime income projections, ahead of the implementation of SECURE Act’s provisions on that regard.

10. Mobile Tech: Nearly 60 percent of plans now offer plan access via mobile technology.

Following is a summary of the results.

Respondent DemographicsRespondents included 2 profit sharing plans, 346 401(k) plans, and 254 combi-nation profit sharing/401(k) plans.

Plans with less than $2 million in assets represent 13.7 percent of respon-dents, while 11.8 percent of respondent plans have a billion or more in assets.

Seventy percent of respondents do not offer any additional retirement- focused plans to employees other than




the reported plan. More than thirty percent of respondents currently offer a non-qualified deferred compensation plan to executives, though they are much more prevalent at large compa-nies — seventy percent of companies with more than 5,000 employees cur-rently offer one. Nearly seventy percent of respondents offer a Health Savings Account (HSA) option to employees.

Employee EligibilityNearly ninety percent of U.S. employees at respondent companies are eligible to participate in their employer’s DC plan. Nearly all plans permit full-time sala-ried and full-time hourly employees to participate in the plan, and about two-thirds of plans allow part-time salaried and hourly employees to participate.

Most companies allow employees to begin contributing within three months of hire (60.7 percent of companies).

Employees are eligible to receive matching company contributions within 3 months of hire at more than half of organizations (51.9 percent) that provide one. For organizations that provide a non-matching contribution, more than a third (40.6 percent) also provide that contribution within the first three months of hire.

Nearly thirty percent of companies have no minimum age requirement for participation, though there is variability among plan size. Forty-four percent of plans with 5,000 or more participants have no age requirement while half of small plans require par-ticipants to be at least 21 years old to participate in the plan.

Participant ContributionsNearly all respondent plans permit participant contributions (the others are profit sharing plans). Pre-tax contributions are permitted in 90.7

percent of plans, while after-tax contributions (Roth and/or 401(m)) are permitted in 79.4 percent of plans.

The average percentage of eligible employees who have a balance in the plan is 90.6 percent. An average of 87.3 percent of eligible employees made contributions to the plan in 2019. The average percentage of salary deferred (pre- and after-tax) for all eligible par-ticipants in this survey was 7.6 percent. See Exhibit 1. Non-highly compensated participants (as defined by the Aver-age Deferral Percentage (ADP) tests) contributed an average of 6.2 percent of pay, while higher-paid participants contributed an average of 6.8 percent of pay.

Roth 401(k)Roth 401(k) contributions have become widely available and are now allowed in three-fourths of plans. See Exhibit 2. More than a quarter of employees (26.4

Research | PSCA’s 63rd Annual Survey

Exhibit 1: Participation Measurements Over Time Year

2011 2012 2013 2014 2015 2016 2017 2018 2019

Percentage With an Account Balance 85.9% 87.6% 88.8% 87.2% 87.6% 88.7% 88.9% 89.3% 90.6%

Percentage Making Contributions to the Plan 79.5% 80.7% 80.3% 80.5% 81.9% 84.9% 84.9% 84.2% 87.3%

Average Deferral Rate 6.4% 6.7% 6.7% 6.5% 6.8% 6.8% 7.1% 7.7% 7.6%

Exhibit 2: Availability of Roth Over Time

40%

50%

60%

70%

80%

2019201820172016201520142013201220112010

Percentage of Plans

Year



percent) made Roth contributions in 2019, up from 23.0 percent in 2018.

Company ContributionsThe average company contribution is 5.3 percent of gross annual pay. See Exhibit 3. Thirty percent of respondents contributed less than three percent of pay, nearly 40 percent contributed between three and six percent of pay, and twenty percent contributed between six and ten percent.

Company contributions are deter-mined by a wide variety of formulas. One-fourth of plans use only a fixed matching formula and 13.2 percent use only a safe-harbor matching formula. The most common formula in plans with a set match is $0.50 per $1.00 on the first 6 percent of pay (20.2 percent of plans), followed by dollar-per-dol-lar on the first six percent of pay (13.6 percent of plans).

Nearly forty percent of plans pro-vide immediate vesting for matching contributions, while 31.3 percent pro-vide immediate vesting for non-match-ing contributions. Among plans that do not have immediate vesting, graduated vesting is the most common arrange-ment for all contribution types.

Asset InvestmentPlans offer an average of 19 funds for both company and participant

contributions. The vast majority of plans (91.6 percent) offer the same fund options for both participant and company contributions. The funds most commonly offered to participants are actively managed domestic equity funds (91.2 percent of plans), indexed domestic equity funds (88.7 percent of plans), actively managed international equity funds (86.1 percent of plans, and actively managed domestic bond funds (80.9 percent of plans). Assets are most frequently invested in target-date funds (23.7 percent), actively managed domestic equity funds (19.5 percent of assets), indexed domestic equity funds (18.3 percent), and stable value funds (6.0 percent).

Forty percent of plans offer a profes-sionally managed account alternative to participants. Less than ten percent of plans (9.3 percent) offer an in-plan

annuity option to participants. Two-thirds of plans use a Qualified Default Investment Alternative (QDIA), and for 78.8 percent of those plans, the QDIA is a target-date fund.

Twelve percent of plans allow com-pany stock as an investment option for both participant and company contri-butions, while four percent restrict it to company contributions only. An aver-age of 17.1 percent of total plan assets is invested in company stock. Half of plans that allow company stock as an option have 10–50 percent of total plan assets invested in it and 1.2 percent have 50 percent or more. See Exhibit 4.

Automatic FeaturesSixty percent of plans have an auto-matic enrollment feature. Automatic enrollment remains most common in


Less than 10%36.4%

10%–50%54.5%

More Than 50%9.1%

Exhibit 4: Percentage of Total Plan Assets Invested in Company Stock for Plans That Offer Company Stock Funds Over Time

Exhibit 3: Company Contributions as a Percentage of Payroll Over Time

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

2019201820172016201520142013201220112010

Percentage of Plans

Year


large plans — 72.6 percent of plans with 5,000 or more participants report using automatic enrollment, while less than one-third of plans with fewer than 50 participants use it. See Exhibit 5.

The most common default defer-ral rate remains three percent of pay, present in 32.4 percent of plans, though nearly as many now use a default of 6 percent. Sixty percent of plans use a default rate of more than 3 percent. Three-fourth of plans with automatic enrollment also facilitate increasing those deferral rates over time.

Loans and DistributionsThe majority of plans (82.6 percent) continue to permit participants to borrow against their plan accounts. Most plans permit participants to have only one loan outstanding at a time (56.0 percent), while 35.8 percent per-mit two loans. Twenty-one percent of participants have at least one loan out-standing with an average loan amount of $10,642. Less than two percent of total plan assets are currently loaned to participants.

Hardship withdrawals are permit-ted in 78.0 percent of plans. The most common reasons for permitting these withdrawals include medical expenses (91.1 percent), post-secondary edu-cation expenses (80.3 percent), and purchase of a primary residence or to prevent eviction or foreclosure (88.4 percent). Hardship withdrawals were taken by an average of 2.1 percent of participants in 2019.

In-service distributions, other than hardship withdrawals, are permitted in 56.3 percent of plans. Lump sum is the most frequently offered distri-bution option for both pre-retirement and retirement distributions (by 71.6 percent and 80.9 percent of respondent plans, respectively).

Participant Education and CommunicationThe most common reasons for pro-viding plan education are to increase participation (67.4 percent), to increase appreciation for the plan (65.7 percent), and retirement planning (56.8 percent). To achieve their education goals, the most common approaches used by plan sponsors include e-mail (58.3 percent), seminars/workshops (47.8 percent), and enrollment kits (48.7 percent).

A quarter of respondent organi-zations offer a comprehensive finan-cial wellness program to employees, including 43.7 percent of large organi-zations. Of those that do, most address budgeting and emergency funds.

Mobile TechnologyMore than 90 percent of companies now provide plan services via the internet, 74.6 percent via vendor call centers, 80.4 percent via sponsor benefit staff, and 57.3 percent now use mobile technology. The use of mobile technol-ogy has increased by 60 percent in the last three years. See Exhibit 6.

Plan ExpensesForty-five percent of plans are charged a basis points fee for recordkeeping and administration and 26.5 percent of plans pay a flat rate per participant. Smaller plans are more likely to be charged a percentage of assets fee (50.0 percent of plans with fewer than 50 participants), whereas larger plans tend to pay a flat rate per participant

(43.6 percent of plans with 5,000 or more participants).

Sixty percent of plans use an institu-tional pricing menu while a quarter use a combination of institutional pricing and revenue sharing. One-fourth of plans use an ERISA bucket for revenue sharing. Nearly sixty percent of com-panies conduct a formal review of fees annually, and 29.5 percent review them more frequently.

ConclusionWhile the economic and physical impacts of COVID-19 may well weigh on retirement preparations, our results at year-end 2019 suggest that the retire-ment security prospects of Americans with access to a retirement plan at work were the best it has ever had been. Next year’s survey may indeed show some declines, but going into the 2020 crisis plans, and the retirement security of Americans, was the best it ever had been. This gives hope that the strength of the current retirement system will weather the challenges it faced in 2020, and as it has in the past, come out on the other side stronger than before.

The survey is available for purchase at: https://www.psca.org/research/ 401k/63rdAR.

Hattie Greenan is the Director of Research and Communications for PSCA.


Exhibit 5: Plans With an Automatic Enrollment Feature Year

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Percentage of Plans 41.8% 45.9% 47.2% 50.2% 52.4% 57.5% 59.7% 61.2% 60.2% 60.2%

Exhibit 6: Companies Providing Plan Transactions via Mobile Technology

Year

2016 2017 2018 2019

Percentage of Plans 36.3% 43.6% 47.5% 57.3%





n March 11, 2021 President Biden signed the American Rescue Plan Act of 2021 (P.L. 117-2) into law. The $1.9 trillion bill contains

numerous provisions affecting nearly every sector of the economy, including pensions. Specifically, the bill includes the Butch Lewis Emergency Pension Plan Relief Act to provide multiem-ployer and single-employer defined benefit plan funding relief, described in more detail below.

Multiemployer Plan Funding ReliefTo address the multiemployer plan funding crisis, the legislation would create a “special financial assistance” program under which cash payments — or grants — would be made by the Pension Benefit Guaranty Corporation (PBGC) to financially troubled multi-employer plans (section 9704 of the legislation).

Those grants would come from Treasury’s general fund, rather than from the PBGC’s existing multiem-ployer revolving fund. Money would be transferred from the general fund to a new fund within the PBGC and then disbursed to plans. The Congressional Budget Office estimates that the grants would total $86 billion.

Eligible multiemployer pension plans would include plans in critical and declining status and plans with significant underfunding with more

retirees than active workers in any plan year beginning in 2020 through 2022. Plans that have suspended benefits and certain plans that have already become insolvent would also be eligible.

The PBGC would be required to publish requirements for the grant applications within 120 days of the date of enactment, and applications would have to be submitted by Dec. 31, 2025. During the first two years after enactment, PBGC could give priority to plans with large, expected assistance and plans expected to face insolvency within five years.

The legislation would also increase premium rates for multiemployer plans to $52 per participant starting in calen-dar year 2031, with the premium rate indexed for inflation.

Single-Employer Plan Funding ReliefThe Butch Lewis Act also provides single-employer plan funding relief by extending the amortization period for funding shortfalls and the pension funding stabilization percentages,

along with modifying the special rules for minimum funding standards for community newspaper plans.

Other Benefit ProvisionsThe new law also expands the Section 162(m) limit to a broader set of “covered employees” and makes numerous other changes, including:

• an increase in exclusion for employer- provided dependent care assistance (section 9632);

• an extension and modification of credits for paid sick and family leave (section 9641);

• an extension and modification of the employee retention credit (section 9651); and

• modification of the tax treatment of student loan forgiveness (section 9675).

Following weeks of intensive lobbying, the American Retirement Association succeeded in convincing Congress to remove a provision that would freeze the annual cost-of-living adjustments (COLAs) for overall contributions to defined contribution plans, the maxi-mum annual benefit under a defined benefit plan, and the limit on the annual compensation of an employee that may be taken into account under a qualified plan.

Andy Remo is Director of Legislative Affairs for the American Retirement Association.

Washington Watch

Washington to the RescueThe American Rescue Plan Act becomes law.By Andy Remo

O

https://www.congress.gov/117/bills/hr1319/BILLS-117hr1319enr.pdf

Deborah HowardHydro Aluminum Metals USA, LLC

Randy HowellKampgrounds of America, Inc.

Stacie HumphriesPolydeck Screen Corporation

Leigh InskeepBL Harbert International

Carrie IsaacsonDakota Electric Association

Lisa JimenezAlamo Group

Monique Johnson-BrothersLincoln Property Company

Tina KentDNP Imagingcomm America Corporation

Lauren KohsmannUMUC Ventures

Michelle KonopSchneider

Melanie LambieVizo Financial Corporate Credit Union

Angela LeePacers Sports & Entertainment

Andrea LewisSMC Ltd

Nikki LossmanNelson-Jameson Inc

Jenny LowAnvil Corporation

April MannHood Industries, Inc.

Leslie MartinNorton Healthcare, Inc.

Lisa MartinCommunity Care Physicians, P.C.

Thomas MartinBenjamin F Edwards

Nichole McDonaldUMUC Ventures

Amanda McDowellMorningstar Properties, LLC

Debra McGaheyHR Options LLC

Eileen MessengerCPA Global part of Clarivate

Jane MossHypertherm Inc

Veronica NateraVino Farms, LLC

Tyler PembleIbotta, Inc

Margaret PerlikVista Capital LLC

Suzanne PhamSuja Life

Patricia PrinceAscent Resources Management Services, LLC

Cindy Resavy#1 Cochran

Rebecca ReyesEdell Shapiro and Finnan LLC

Ann RobertsUpsher-Smith Laboratories, LLC

Faith RobinsonErie County Medical Center Corporation

Andrew RodrigueCommunity Care Physicians, PC

Samantha RosenbergAACC

Sheila RothLowndes Drosdick Doster Kantor & Reed

Tyler RushtonNature’s Sunshine Products, Inc.

Paula SchlaxThe Marcus Corporation

Carol SedlackoAustin Powder Company

Susan ShulferDelta Dental of Wisconsin

Ashley SiscoValiant Integrated Services

Benjamin SladeThe VPS Companies, Inc.

Susan SleightMSU Federal Credit Union

Kieana SmithAlsac

Joseph StanglAir Force Association

Danielle StorrsHastings Mutual Insurance Company

Dawn StrasserCentral States Manufacturing, Inc.

Cassandra Suarez Del RealUline Inc.

Jeannette TabbAllen Corporation of America

Amber TrudellCommunity Treatment, Inc.

Silvia Ventura-MurphyManhattan Beachwear, Inc

Corey VoegeleHorst Group

Patricia WakimM/A/R/C Research, LLC

Janice WalshClearent LLC

Michael WilkeNelson Jameson Inc

Dona WoodConcrete Supply Co.

Ariel WorkingsAWHONN

Heather WyattGoDaddy

Certified Plan Sponsor Professionals (continued from inside front cover)

Earn theCertified PlanSponsor Professional(CPSP)™ credential and proveyou have the knowledge and skillrequired to successfully choose, buildand run a retirement plan.

THAN K YOU TO OU RE DUCATION PARTN E RS

BE AN EXPERT

VISIT PSCA.ORG/CPSP TO GET STARTED.

https://www.psca.org/CPSP

PSCA’s 2021 National Conference (To be held virtually)April 19–20, 2021

Plan Sponsor Roundtables(For plan sponsor members only)(To be held virtually)May 19, 2021

June 23, 2021 [403(b) Plan Sponsors only]

August 25, 2021

November 17, 2021

All roundtables are from 4–5pm ET

Register at: https://www.psca.org/plan-sponsor-roundtables

Conferences and TrainingNational and regional conferences designed for defined contribution plan administrators and sponsors.Our must-attend events provide education from industry leaders and peer networking.

Signature AwardsPeer and industry recognition for employee communi-cation and education.Recognizing outstanding defined contribution programs implemented by plan sponsors, administrators, and service providers.

Research and BenchmarkingPSCA surveys: Most comprehensive and unbiased source of plan benchmarking data in the industry.Annual surveys of profit sharing, 401(k), 403(b), and NQDC plans, as well as HSAs, created by and for members. Current trend and other surveys available throughout the year. Free to members that participate. Surveys currently available include:• 2021 NQDC Plan Survey• 63rd Annual Survey of Profit Sharing and 401(k) Plans• 2020 403(b) Plan Survey• 2020 HSA Survey• 2020 Plan Investment Trends

Executive ReportA monthly electronic legislative newsletter.Providing concise, current information on Washington’s most recent events and developments.

Media OutreachPSCA works to ensure fair coverage of the DC system in the media.PSCA continually speaks to reporters to provide and promote accurate, concise, and balanced coverage DC plans and responds to negative press with editorials and letters to the editors. PSCA is also active on social media — follow us on twitter at @psca401k and on LinkedIn.

Washington RepresentationYour direct connection to Washington DC events and developments affecting DC plans.PSCA works in Washington to advocate in the best interests of our members and bring you the latest developments that will impact your plan. PSCA is a founding board member of the Save Our Savings Coalition that is currently working in Washington to preserve plan limits amongst tax reform.

Quarterly Magazine, Defined Contribution InsightsAn award-winning and essential 401(k) and profit sharing plan resource.Featuring nationally-respected columnists, case studies, the latest research, and more. Providing practical and constructive solutions for sponsors.

Professional Growth — Join a Committee!For plan sponsors, administrators, and service providers.Many opportunities for PSCA members to serve on committees, speak at regional and national conferences, and write articles for Defined Contribution Insights.

PSCA Member Benefits and Resources

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https://www.psca.org/psca-committees

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