401(k) plans have boosted workers' retirement readiness, ICI report finds

A new report from the Investment Company Institute and ISS MI BrightScope concludes that 401(k) plans with automatic enrollment and employer contributions play a significant role in helping employees save for retirement.

Examining data from more than 61,000 large private-sector 401(k) plans in 2022, the study highlighted trends in plan design, investment options, and participant behavior.

According to the research, more than one-third of large 401(k) plans surveyed include automatic enrollment features, and nearly 90 percent offer employer matches, which help encourage member participation and long-term savings growth.

"Expanding automatic enrollment removes the obstacles to saving, helping more workers easily become savers. And employer contributions magnify those savings, helping participants grow their nest eggs," Sarah Holden, senior director of retirement and investor research at ICI, said in a statement announcing the findings. "As a result, 401(k) plans continue to help new generations of workers on their path towards a secure retirement."

The study found larger 401(k) plans are more likely to adopt automatic enrollment. More than half of plans with more than $50 million in assets reported using automatic enrollment, compared with about one-quarter of plans with $10 million or less in assets. Additionally, more than 60 percent of plans with more than $500 million in assets reported using the feature.

While much has been said about how auto features help boost retirement saving among Americans, a study published by the National Bureau of Economic Research suggests several factors can blunt those benefits, including employee turnover and workers choosing to opt out.

The joint research from ICI and Brightscope also found larger plans were more likely to offer a mix of employer contributions, participant loans, and automatic enrollment. Among plans with at least 1,000 participants, more than 40 percent included all three features, compared with just 16 percent of plans with fewer than 100 participants.

The report highlights that large 401(k) plans provide a range of investment choices, with the average plan offering 29 options. Nearly all plans include domestic equity, international equity, and domestic bond funds. Investment vehicles such as mutual funds, collective investment trusts – which accelerated to take a minor majority of AUM in the TDF space in 2024, according to Sway Research – and separate accounts are common.

"401(k) plans often give participants a choice between a target date fund – for the hands-off investor who wants professional assistance with asset allocation and rebalancing—and a broad selection of equity, balanced, bond, and money market or stable value funds – for investors who want to hand tailor a personal solution," said Brooks Herman, managing director at BrightScope. "This choice helps 401(k) plan participants build a retirement strategy that aligns with their individual needs."

Equity funds represented the largest portion of 401(k) assets in 2022, accounting for 40 percent of total plan assets, while balanced funds, including target date funds, made up 33 percent. Bond funds held 7 percent, and guaranteed investment contracts and money market funds accounted for 8 percent.

The study also found that mutual fund expense ratios in 401(k) plans tend to be lower in larger plans and have generally declined over time. For example, in 2022, the average expense ratio for domestic equity mutual funds was 0.43 percent for plans with less than $1 million in assets, compared with 0.31 percent for plans with more than $1 billion in assets.

A report from NEPC this week also found an inverse relationship between plan size and fees. In its research, it found base fees in larger defined contribution plans worked out to between  $20 and $40 per participant, compared to smaller plans where fees amounted to $40 to $70 per participant.