Hardship Withdrawals From 403(b) Plans Minimal

Nonprofits are adding automatic enrollment to their 403(b) pension plans, with the largest plans having the largest year-over-year participation jump. And, while 74.7 percent of plans permit hardship withdrawals, that happened in only 1.6 percent of participants during 2010.

Those are among the findings of The Profit Sharing/401k Council of America’s 2011 403(b) Plan Survey, sponsoredby the Principal Financial Group in Des Moines, Iowa. Data is gathered from arts/cultural, association, foundation, healthcare (other than hospitals), higher education, hospitals and hospital systems, K-12 education, library/museum, other education, religious institutions (churches), research/science/environmental and social services.

Automatic enrollment was the norm at 12.3 percent of plans. Automatic enrollment is more prevalent for large plans (29.6 percent of plans with 1,000 or more participants). The most common default investment options are target-date funds (34.2 percent of plans), followed by lifestyle funds (28.9 percent of plans). More than 500 nonprofits from across the country provided answers for the survey.

Catch-up contributions also lost ground year-over-year, with 93 percent of plans allowing participants 50 and older to make additional contributions, down from 94.5 for the previous study.

Some 16.9 percent of plans permit Roth after-tax contributions, up from 13.9 percent of plans in 2009 and 10.9 percent in 2007. Roth availability is more common at large organizations with 27.8 percent of plans with 1,000 or more participants offering Roth.  9.5 percent of participants made Roth contributions when permitted.

Plans offer an average of 26 funds for organization contributions and an average of 28 funds for participant contributions. According to the findings, 20.6 percent of plans have between 21 and 50 funds and 11.3 percent have more than 50 funds available for participant contributions. And, 69.1 percent of plans offer target-date funds as an investment option. Eligibility was flat, year-over-year, with 84.8 percent of employees at respondent organizations eligible to participate in their organization’s 403(b) plan during 2010 versus 84.8 percent during 2009, according to the survey.

Some 82.6 percent of organizations make contributions to the plan, with 36.9 percent making matching contributions only, 29 percent making non-matching contributions only, and 16.7 percent make both matching and non-matching contributions. The majority of organizations made contributions in 2010 when provided for in the plan including 96.5 percent of plans with only matching contributions and 94.1 with only non-matching contributions. 

The average organization contribution per active participant in 2010 was $3,450, and the median contribution was $2,364.

Some 96.4 percent of plans permit participant contributions. Pre-tax contributions are permitted in 95.6 percent of plans, while Roth and 401(m) after-tax contributions are permitted in 19.5 percent of plans. 6.6 percent of plans require participants to contribute to the plan as a condition of employment.

The average percentage of eligible employees with a balance in a plan is 74.7 percent. An average of 64.2 percent of eligible employees contributed to the plan during 2010. The average account balance for active plan participants is $70,794. 

According to respondents, 72.1 percent of plans allow participants to borrow against their account assets, with 49.5 percent allow loans for any reason and 22.6 percent allow loans only in hardship situations.

Participants received help with investment decision-making at 21.6 percent of organizations. The most common type of advice offered is one-on-one counseling in person (88.5 percent of organizations).