401(k) Plans Are Better Than Ever: How About Yours?

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By Hal M. Bundrick

Despite the frequent gloomy reports, some Americans are apparently conquering their retirement challenge. According to a recent T. Rowe Price survey, nearly 90 percent of workers who have retired in the last five years say they are satisfied with their life-after-work so far, and almost three-quarters feel they are better off financially than their parents at the same age.

Doesn't sound like the usual accounts of worried seniors facing a dismal retirement living on the brink of financial ruin does it? That's because the survey was based on interviews with 401(k) savers – either currently working and contributing to their company's retirement plan or in retirement with a 401(k) or rollover IRA balance to draw from.

The 401(k) is the cornerstone to a comfortable retirement, and the plans are better than ever. There are more and better investment choices, the likelihood that your employer will kick-in with matching contributions and most importantly, lower costs than ever.

What's Common in Corporate America

The Investment Company Institute and BrightScope recently analyzed more than 35,000 401(k) plans, determining the most-common features and fees offered to American workers. These averages can serve as a benchmark for what you should expect in your company's retirement plan.
  • Fees are still falling. BrightScope says total plan costs have been going down since 2009, with overall average costs about 0.91 percent of assets, as of 2012. However, drilling down even deeper into the data, the research found that the average participant pays even less: 0.53 percent. That includes administrative fees, advice and investment management fees. New regulations stipulate that plan providers disclose all fees, so it should be simple enough for you to compare your plan's expenses to the national average.
  • Investment options are better. The report says the average 401(k) plan offers 25 investment options: about 13 equity funds, three bond funds and six target date funds. Small plans –- those with less than $1 million in assets -– offer about 20 investment options. More plans are offering index funds, which generally have lower expense ratios.
  • About 80 percent of larger plans offer matching contributions from the employer. Of course, this can vary with the size of the employer, but about four-fifths of all plans with 100 participants or more offer employer matches. Unfortunately, smaller plan sponsors have become slightly less likely to kick-in a match. But of all the companies that do, the most common employer match is 50 percent of contributions up to 6 percent of salary.
  • More plans are making the first move for you. To spur worker savings, more plans are offering automatic enrollment. Of course, the employee has the right to optout or adjust the contribution rate, but of the plans with this feature, the most common is to automatically defer 3 percent of salary. Some plans also offer "auto-increase" or "auto-escalation" options to automatically raise the contribution rate.
Hal M. Bundrick is a certified financial planner.
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