Many features of employer-sponsored 401(k)s vary greatly from company to company. So what does a “typical” 401(k) look like?
It wasn’t too long ago that virtually every 401k plan included a waiting period of six months to a year before new hires could sign up and start contributing. But long waiting periods are the exception rather than the norm nowadays.
In fact, 60% of employers now offer new hires immediate (one month or less at the company) eligibility in the company’s 401k.
Here are the other top eligibility requirements for 401k participation:
- three months or 90 days (15%)
- six months or 1000 hours (10%)
- one year (11%), and
- other (3%).
In addition to instant eligibility, many plans offer immediate vesting. The study found that almost half (40%) of 401ks include immediate vesting for employer contributions, and 23% do so for profit-sharing contributions.
Auto features, target-dates on the rise
Increasingly, employers are relying on plan features like automatic enrollment and escalation to bolster employees’ 401k participation and contribution rates.
Of all plans, 38% have an auto-enrollment feature, with 3% being the most common deferral rate employers have this feature set to (the auto-enrollment rate for 58% of plans). However, auto-enrollment is even more common among large plans. Fifty-four percent of plans with 5,000 or more participants have an auto enrollment feature.
As for investment options, 72% of plan sponsors have life-cycle or target date funds (TDFs) set as their 401k’s default investment option. Another 13% have their default option set to balanced or lifestyle funds, the study found.
Most common match formulas
While there are an array of formulas employers use to determine the amount they’ll contribute to workers’ 401ks, the two most common were:
- A $1 for $1 match of up to a certain percentage of workers pay — normally around 6% (match formula used by 27% of employers)
- A $0.50 for $1 match of up to a certain percentage of workers pay — normally around 6% (match formula used by 23% of employers).
If you’re wondering how your company’s 401k participation compares to the average plan, 87% of eligible employees have money in their employer’s 401k, on average.