How does your defined contribution plan stack up against the largest 100 U.S. corporations? Maybe better than you might think. A review of key plan parameters gleaned from the 5500 forms filed by Fortune 100 companies for 2013 have been tabulated by analysts at Towers Watson. The results yield a useful benchmarking tool for other employers seeking perspective.
Some of the data elements are pertinent only to publicly held companies. For example, employer stock averaged 20% of the assets of Fortune 100 DC plans that contain employer stock. (Three-fourths of the Fortune 100s DC plans hold some amount of employer stock.)
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That stock is most typically distributed to plan participants as a component of the employer matching contribution or, less frequently, the entire matching contribution, and sometimes a non-matching contribution. Also, employer stock is typically distributed within the framework of an employee share ownership plan that is a component of the overall DC plan.
Doors wide open
Fortune 100 DC plans generally do little to restrict participation. For example, only 22% impose a minimum age requirement. Of those, slightly more than half require employees to be at least 21; the remainder, 18.
A somewhat larger proportion 25% establish a minimum service requirement for participation eligibility. Within that group, the most prevalent service requirement was three months (8%), followed by one month (7%), two months (4%), six months (2%), less than one month (2%), and one year (1%).
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When it comes to matching contributions, however, more Fortune 100 employers (39%) impose service requirements. The most common requirement was one year of service, required by 22% of these employers.
Only a narrow majority (52%) of the Fortune 100 vest matching contributions immediately. Of the 48% that do not, 32% use a cliff vesting formula (typically thee years), and the remaining 16% employ a graded vesting formula.
Non-matching contributions
A significant proportion (46%) of Fortune 100 employers made non-matching contributions in 2013. The overwhelming percentage of them also provided matching contributions, but 2% provided only non-matching contributions.
Although defined benefit pensions are virtually extinct in the private sector, 30% of the Fortune 100 still maintain plans that are open to new-hires. Predictably, those DB sponsors were less generous with their DC plans; only one-fourth of them provided non-matching 401(k) contributions.
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Among all Fortune 100 DC plan sponsors, 74% use a single matching rate, typically dollar-for-dollar up to 6% of pay. The remaining 26%, i.e., those that use a multi-tier contribution rate, typically match dollar-for-dollar up to 3% of pay and 50 cents per dollar on the next 2%, and no match above 5%.
Very few (13%) of these sponsors made matching contributions in the form of employer stock. And of those that did, only two companies did not permit participants to switch immediately from employer stock to some other investment.
Investment options are abundant for Fortune 100 DC plan participants. The largest proportion (32%) of sponsors offered 11-15 investment alternatives. Next most common range: 16-20 choices, offered by one-fourth of the Fortune 100. Only one sponsor offered participants no more than five investment choices, and five sponsors made more than 30 investment options available.
