PLANSPONSOR - March - April 2023 - 4

PARTICIPANT ANALYSIS
The Power of the Deferral Rate
T
he salary deferral behavior of defined
contribution plan participants
being
increasingly
employers'
influenced
automatic-enrollment
by
and
-escalation default rates. When sponsors
set the rate at 5% or 6%, a new-employee
sample group saved more than when the
rate was set at 3% or 4%, says " The Impact
of Employer Defaults and Match Rates
on Retirement Saving, " published on the
Social Science Research Network.
PLANSPONSOR's latest Participant
Survey also points to a default deferral
rate's power. When asked why they chose
their deferral rate, across the four salary
ranges shown, most participants said
they had merely accepted the default
designation. The only salary group that
selected a different option was that
earning
$200,000-plus, where most
respondents said they chose the rate that
let them defer the most legally.
Like plan design overall, employer
contribution rates vary across employers.
Whether the match is a traditional or a
stretch match has an impact on employee
contributions.
Saving to the employer match was
the second most popular basis for how
respondents chose their deferral rate,
when considering all participants making
under $200,000. Second place for those
in the highest salary group was accepting
the default deferral rate. Across all salary
groups, these two reasons accounted for
approximately two-thirds of respondents.
Participants' overall
earnings
also
factored into their deferral rate selection.
How they chose was somewhat predictable,
because, as other data from this
survey indicate, some had outside income
sources or debt.
What rate do industry experts advise?
" Our rule of thumb is to save 15% annually
throughout your career, including
employer
contributions, "
says Meghan
Murphy, vice president, life events at
Fidelity Investments. -Judy Faust Hartnett
4 PLANSPONSOR.COM March - April 2023
Source: 2022 PLANSPONSOR Participant Survey
is
Why Participants Save at the Rate They Do
<$25,000
Accepted the default saving rate
Saves to the maximum employer match
Saves to the maximum amount allowable
Based it on a targeted level of savings
Followed guidance from spouse/friend/adviser
Started at a lower rate and was auto-increased
Don't know/Unsure
3.4%
1.2%
0.1%
0.5%
0.3%
0.1%
1.3%
Participant Retirement Deferral Rate
<$25,000
Less than 2%
2.0% - 3.0%
3.1% - 5.0%
5.1% - 7.0%
7.1% - 10.0%
10.1% - 12.0%
More than 12%
Don't know/Unsure
9.0%
27.4%
28.3%
17.5%
9.9%
3.8%
1.9%
2.4%
8.5%
5.8%
1.3%
2.7%
0.6%
0.5%
1.0%
$25,000 -
$49,999
7.9%
5.3%
2.2%
1.9%
0.6%
1.0%
1.0%
$50,000 -
$74,999
$75,000 -
$99,999
6.3%
6.1%
2.1%
3.1%
0.9%
0.3%
0.8%
$25,000 -
$49,999
7.8%
21.2%
26.5%
19.0%
12.7%
6.5%
3.6%
2.6%
$50,000 -
$74,999
4.3%
11.4%
20.0%
17.1%
22.4%
11.4%
10.0%
3.3%
Participants' Household Retirement Savings, as of 2022
l <$50,000
l $50,000 - $149,999
l $150,000 - $499,999
l >$500,000
l Prefer not to answer
l 36.8%
l 21.6%
l 18.3%
l 19.6%
l 3.8%
$75,000 -
$99,999
2.2%
4.3%
15.2%
10.9%
17.4%
19.6%
28.3%
2.2%
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PLANSPONSOR - March - April 2023

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