Retirement Plan Contributions Pull Back in 2022, Still Strong

After record levels of participant and employer contributions in 2021, contributions slip among a tightening economy and high inflation

After record contribution rates from participants and employers in 2021, plan contributions dipped in 2022, according to the latest survey of 401(k) plans from The Plan Sponsor Council of America (PSCA). Though participation and contribution rates slipped, they didn’t fall — participation remains strong, coming down from record highs to levels we have seen within the last few years.

“Last year we stated that the strength of the system going into 2022, with record levels of contributions and adoption of participant support designs, would help buffer retirement savings against any economic downturn – for now that seems to be the case” said Hattie Greenan, director of research and communications for PSCA.

Contributions
Nearly 90 percent of eligible employees had 401(k) accounts and 85.6 percent made contributions in 2022. The combined employer and employee contribution rate was 12.1 percent (down from 15.3 percent in 2021). Though the average employer contribution slipped to below five percent of pay, most companies continued to make contributions (96.2 percent made planned matching contributions).

Plan Designs
Roth after-tax contributions are now available in 90 percent of plans. Though only 12.4 percent of plans will be allowing Roth treatment of employer contributions as allowed under SECURE 2.0, 40 percent are still considering it, and nearly 60 percent currently allow in-plan Roth conversions. Automatic enrolment availability increased in 2022 and is now used in 64 percent of plans. The use of automatically reenrolling nonparticipants annually has increased over the last 10 years and is a trend to watch as we continue to see use of that feature expand.

“Despite economic challenges, plan sponsors moved forward in implementing design features to support participants — features that have become best practices over the last several years continue to take hold” said Will Hansen, PSCA’s executive director. “We also saw an increased focus on investments as employers are thoughtfully considering the best options for their participants for long term financial success.” 

Investments
More plan sponsors are using an independent investment advisor to help with fiduciary responsibility – 83 percent of plans, up from 76.8 percent in 2021. There was also a slight uptick in the availability of retirement income products and ESG funds (though availability is still low), and large plans seems to be adding professionally managed accounts as an option for participants.

Survey highlights include:

• Participation: 85.6 percent of eligible employees made contributions, down from 89.2 percent in 2021.
• Contribution rates: Participants contributed an average of 7.4 percent of pay, and companies contributed 4.8 percent average employer contribution.
• Financial literacy: The priority for retirement plan education was financial literacy for the second year in a row, indicated by 83 percent of organizations and up from 77 percent in 2021.
• Investments: 6.4 percent of plans offer an ESG fund, up from 4.2 percent in 2021 and 10.8 percent offer an in-plan lifetime income product, up from 8.1 percent.
• Mobile technology: 85 percent of large plans provide retirement plan transactions via mobile technology.

About the Survey
PSCA’s 66th Annual Survey of 401(k) and Profit Sharing Plans reports on the 2022 plan-year experience of nearly 700 plans.  More information can be found at: https://www.psca.org/research/401k/66thAR. Media copies can be requested at [email protected].