Upfront: Profit-Sharing and 401(k) Reality Check

Companies that want to see how their profit sharing and 401(k) plans stack up can turn to the 47th annual survey of such plans sponsored by the Profit Sharing/401(k) Council of America (PSCA). That group's report offers comparative data on such topics as participation rates, participant deferrals, company contributions, investment options, asset allocation, Internet usage and participant loans.

According to the report, the average company contribution is 4.4 percent of payroll. The highest company contributions are in profit-sharing plans (9.3 percent of payroll, on average) and the lowest are in 401(k) plans (3 percent of payroll). Company contributions average 15.5 percent of total net profit for profit-sharing plans and 6.7 percent of total net profit for 401(k) plans.

Other highlights of the report include the following:

• The proportion of plans that offer 10 or more fund options for participant contributions is 87.3 percent, up from 80.8 percent of companies in 2002.
• On average, 16 funds are available for company contributions, and 17 funds are available for participant contributions.
• The funds most commonly offered for participant contributions are actively managed domestic equity funds (available in 73.7 percent of plans), actively managed international equity funds (in 69.3 percent), balanced stock/bond funds (in 67.9 percent), and indexed domestic equity funds (in 62.5 percent).
• Automatic enrollment is a feature of 8.4 percent of the plans surveyed. It is most popular in large plans.
• Predominant services for defined-contribution plans continue to be investment management trusteeship and recordkeeping. Among the surveyed plans, 40.6 percent are self-trusted, 36.2 percent use bank trustees and 23.3 percent use nonbank trustees. Small plans tend to be self-trusted, while larger plans tend to use bank or nonbank trustees.
• Recordkeeping services are provided most frequently by third-party administrators (31.3 percent), banks (15.5 percent), and mutual funds (12.4 percent).
• The use of the Internet in plan administration continues to increase rapidly; 92.6 percent of plans permit participants to make some type of transaction online.
• Loans continue to be a common feature of these plans. Among those studied, 83.2 percent permit loans, and loaned assets account for 1.4 percent of those plans' total assets.
• Investment education encompasses a variety of approaches, including enrollment kits, fund performance sheets, newsletters, seminars, Internet tools and paycheck stuffers.
• Investment advice is offered by 54.1 percent of the plans.