How does your
defined contribution plan stack up against the largest 100 U.S. corporations?
Maybe better than you might think. A review of key plan parameters gleaned from
the 5500 forms filed by Fortune 100 companies for 2013 have been tabulated by
analysts at Towers Watson. The results yield a useful benchmarking tool for
other employers seeking perspective.
Some of the data elements are pertinent only to publicly
held companies. For example, employer stock averaged 20% of the assets of
Fortune 100 DC plans that contain employer stock. (Three-fourths of the Fortune
100’s DC plans hold some amount of employer stock.)
That stock is most typically distributed to plan
participants as a component of the employer matching contribution or, less
frequently, the entire matching contribution, and sometimes a non-matching
contribution. Also, employer stock is typically distributed within the
framework of an employee share ownership plan that is a component of the
overall DC plan.
Doors wide open
Fortune 100 DC plans generally do little to restrict
participation. For example, only 22% impose a minimum age requirement. Of
those, slightly more than half require employees to be at least 21; the
remainder, 18.
A somewhat larger proportion – 25% – establish a minimum
service requirement for participation eligibility. Within that group, the most
prevalent service requirement was three months (8%), followed by one month
(7%), two months (4%), six months (2%), less than one month (2%), and one year
(1%).
When it comes to matching contributions, however, more
Fortune 100 employers (39%) impose service requirements. The most common
requirement was one year of service, required by 22% of these employers.
Only a narrow majority (52%) of the Fortune 100 vest matching
contributions immediately. Of the 48% that do not, 32% use a cliff vesting
formula (typically thee years), and the remaining 16% employ a graded vesting
formula.
Non-matching
contributions
A significant proportion (46%) of Fortune 100 employers made
non-matching contributions in 2013. The overwhelming percentage of them also
provided matching contributions, but 2% provided only non-matching
contributions.
Although defined benefit pensions are virtually extinct
in the private sector, 30% of the Fortune 100 still maintain plans that are
open to new-hires. Predictably, those DB sponsors were less generous with their
DC plans; only one-fourth of them provided non-matching 401(k) contributions.
Among all Fortune 100 DC plan sponsors, 74% use a single
matching rate, typically dollar-for-dollar up to 6% of pay. The remaining 26%,
i.e., those that use a multi-tier contribution rate, typically match
dollar-for-dollar up to 3% of pay and 50 cents per dollar on the next 2%, and
no match above 5%.
Very few (13%) of these sponsors made matching
contributions in the form of employer stock. And of those that did, only two
companies did not permit participants to switch immediately from employer stock
to some other investment.
Investment options are abundant for Fortune 100 DC plan
participants. The largest proportion (32%) of sponsors offered 11-15 investment
alternatives. Next most common range: 16-20 choices, offered by one-fourth of
the Fortune 100. Only one sponsor offered participants no more than five
investment choices, and five sponsors made more than 30 investment options
available.
Source: Employee
Benefit Adviser
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