Defined contribution (DC) plans are now the primary retirement savings vehicles for many U.S. workers. To be able to afford a comfortable retirement in the future, workers need to make the most of their DC plans today. To that end, many employers are adopting plan designs that encourage employees to participate, save more and make educated investment decisions.

This Willis Towers Watson analysis1 is based primarily on Fortune 100 companies’ accounting reports attached to Forms 5500 (annual reports) submitted to the Department of Labor for their largest DC plan covering salaried employees for the 2014 plan year (the latest available).2 The analysis looks at eligibility and vesting rules, employee and employer contributions, plan investments and plan expenses.

As the data are publicly available, the sample and data are well defined and consistent, with no apparent sample bias.

Analysis highlights

  • Of Fortune 100 employers that offered only DC plans to new hires in 2014, 48% provided both matching and non-matching contributions, 48% offered matching contributions only, 3% provided non-matching contributions only and 1% made no contribution. Of Fortune 100 companies that also sponsored active defined benefit (DB) plans in 2014, 21% offered both matching and non-matching contributions, 76% offered matching contributions only and 3% provided neither in their DC plan.
  • In 2014, three-quarters of Fortune 100 DC plan sponsors maintained company stock in their DC plan assets. Among this group, company stock averaged roughly 19% of total plan assets.
  • The vast majority of companies allowed plan participants to direct the investment of employer contributions.
  • A very small minority of employers provided contributions in company stock.
  • Investment returns on DC plan assets averaged 7% during 2014.
  • More than half (53%) of these Fortune 100 companies had automatic enrollment in 2014, and 58% of those with auto-enrollment also provided for automatic increases in employee contributions over time. This represents an increase from our 2013 analysis, when 48% of Fortune 100 companies had automatic enrollment.

Aggregate cash flow statement for 2014 Fortune 100

Among the 2014 Fortune 100, corporate net revenue ranged from $30.9 billion to $486 billion. At year-end 2014, aggregate DC plan assets for these companies totaled approximately $847 billion (Figure 1).

Figure 1. Aggregate cash flow statement of DC plans of 2014 Fortune 100 companies

Aggregate cash flow statement of DC plans of 2014 Fortune 100 companies

Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Aggregate plan assets grew by over 7% in 2014 — down considerably from 20% in 2013 — with most of the growth attributable to investment income (employer and employee contributions were less than benefit payments plus expenses). Employers in this analysis contributed roughly $18 billion to their plans for 2014, and their employees contributed about $33 billion.

Eligibility and vesting requirements for DC plan participation

Only 19% of these Fortune 100 companies had an age requirement — either 18 or 21 — and 23% had a service requirement for DC plan participation in 2014 (Figures 2 and 3).

Figure 2. Age requirements for DC plan participation at Fortune 100 companies, 2014

Age requirements for DC plan participation at Fortune 100 companies, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

The most common service requirements were three months (6%) and one month (6%).

Figure 3. Service requirements for DC plan participation at Fortune 100 companies (employee contributions only), 2014

Service requirements for DC plan participation at Fortune 100 companies (employee contributions only), 2014

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Source: Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Figure 4 shows combined age and service requirements for DC plan participation in 2014. Roughly two-thirds of plan sponsors had no age or service requirements for employee participation.

Figure 4. Combination of age and service requirements for DC plan participation at Fortune 100 companies (employee contributions only), 2014
Click to enlarge image

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Service requirements for receiving employer contributions

Sixty-five percent of companies contributed to workers’ DC plans regardless of length of service, while 22% required employees to work for a year before receiving contributions (Figure 5).

Figure 5. Service requirements for employer contributions at Fortune 100 companies, 2014

Service requirements for employer contributions at Fortune 100 companies, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

In 78% of companies, employees became eligible for plan participation and employer contributions at the same time. In the remaining 22%, employees had to work for some period — most often one year — before receiving employer contributions.

Employer matching contributions often vest immediately

Employer matching contributions vested immediately in 49% of DC plans in 2014 (Figure 6). Slightly more than one-third (34%) of plans used cliff vesting, and 17% used a graded vesting schedule that began during the second year of service and continued for another one to four years, typically ending with full vesting after the fifth year.

Figure 6. Vesting requirements for matching contributions at Fortune 100 companies, 2014

Vesting requirements for matching contributions at Fortune 100 companies, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

With cliff vesting, employees must meet a service requirement (usually three years) before the company contribution is fully theirs. With graded vesting, the portability percentage of employer contributions depends on how long the employee has worked for the company.

Employer non-matching contributions usually take longer to vest

There is usually some waiting period before employees fully vest in non-matching employer contributions (Figure 7). Of employers in our analysis offering non-matching contributions, 58% used cliff vesting (typically a three-year schedule), 26% vested the contributions immediately and 16% applied a graded vesting schedule.

Figure 7. Vesting requirements for non-matching contributions at Fortune 100 companies, 2014

Vesting requirements for non-matching contributions at Fortune 100 companies, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Contributions and match rates

In 2014, 56% of Fortune 100 companies made only matching contributions to DC accounts, and 40% made both matching and non-matching contributions (Figure 8). Two employers made only non-matching contributions, and two employers made no contributions to employees’ accounts.3

Figure 8. Types of employer contributions provided to newly hired employees at Fortune 100 companies, 2014

Types of employer contributions provided to newly hired employees at Fortune 100 companies, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Employers with active DB plans are less likely to offer non-matching contributions

Seventy-one percent of employers in this analysis offered only a DC plan to newly hired salaried employees during 2014. Of these, 48% provided both matching and non-matching contributions, 48% offered matching contributions only, 3% made only non-matching contributions and 1% did not contribute. Where the company also still sponsored an active DB plan (i.e., a plan open to newly hired employees), only 21% provided both matching and non-matching contributions, 76% offered matching contributions only and 3% provided neither.

Several of these Fortune 100 companies introduced the non-matching contribution to the DC plan shortly after freezing or closing the DB plan, presumably to reflect the DB pension loss.

Figure 9 shows the maximum employer match (assuming the worker defers the amount necessary to receive the maximum matching contribution). For plan year 2014, the average matching contribution was 4.8% of pay, while the median was 4.5% of pay.

Figure 9. Distribution of maximum employer matching contributions at Fortune 100 companies, 2014

Distribution of maximum employer matching contributions at Fortune 100 companies, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Seventy-five percent of employers that offered a match used a single-tier match formula, most commonly dollar-to-dollar up to 6% of pay. Twenty-five percent offered a multitier match, typically dollar-for-dollar up to 3% of pay and 50 cents on the dollar for the next 2% of pay.

Among Fortune 100 companies providing non-matching contributions in 2014, percentages were fixed in slightly more than two-thirds of companies, with the average being 2.7% of pay and the median 2.5%. In the remaining companies, non-matching contributions in 2014 were at the employer’s discretion, sometimes linked to corporate profits, and averaged 3.7% of pay in 2014.4

Employer contributions for 2014

In companies that offered only a DC plan to new hires and provided employer contributions in 2014, contributions for a hypothetical new hire averaged 6.1% of pay.5

Employers that sponsored both a DC plan and an active DB plan contributed less to the DC plan than those that used to offer a DB pension, but more than those that had always been DC only. In 2014, active DB plan sponsors contributed an average (matching plus non-matching) 5.6% of pay to the DC plan. Even though DC-only companies today might provide larger employer contributions than companies that sponsor both DC and DB plans, the larger contributions do not generally make up for the lack of an active DB plan.

Investments of employer contributions are mostly participant directed

Employer contributions to DC accounts may be invested in the participant’s investment choice (which might include employer stock), in company stock or a combination of the two. As shown in Figure 10, 86% of plans allowed participants to choose their investments in 2014. Eleven percent made contributions in the form of employer stock, and 3% split their contributions between employer stock and participant direction.

Figure 10. How DC matching contributions were invested, 2014

How DC matching contributions were invested, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

In all but two companies that made employer contributions in company stock, employees could diversify out of the company stock immediately.

Plan investments

In 2014, these DC plans offered from four to more than 31 investment options, with a median of 16 funds (Figure 11). Sixty-seven percent of these employers offered between 11 and 20 investment options to their workers.

Figure 11. Number of investment funds offered in DC plans of Fortune 100 companies, 2014*

Number of investment funds offered in DC plans of Fortune 100 companies, 2014*

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*The analysis considers target date funds and brokerage windows as one investment option each.
Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies.

Prevalence of employer stock in DC plans declines

Between 2013 and 2014, the percentage of DC plan assets invested in employer stock dropped slightly (Figure 12). At year-end 2014, 75 companies held some plan assets in employer stock.6 Averaged over all companies in the analysis, 14.4% of plan assets were allocated to company stock. Of companies whose plans held company stock, the holdings averaged 19.1% of plan assets.

Figure 12. Average allocations to employer stock in Fortune 100 DC plans, 2013 versus 2014

Average allocations to employer stock in Fortune 100 DC plans, 2013 versus 2014

Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

In DC plans with company stock at year-end 2014, the investments made up less than 10% of plan assets in 33% of plans and between 10% and 19.9% in 28% of plans (Figure 13). Eighty-four percent of these plans held less than 30% of their assets in company stock. Only one plan held 70% or more of plan assets in company stock.

Figure 13. Allocations to employer stock in companies holding such assets, 2013 versus 2014

Allocations to employer stock in companies holding such assets, 2013 versus 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Investment returns were moderate in 2014

For calendar-year DC plans in this analysis with available data, investment returns averaged 7.2% during 2014, and the median return was 6.8%.7 Returns ranged from 5% to 9.9% in 72% of these plans (Figure 14).

Figure 14. Distribution of Fortune 100 investment returns in DC plans, 2014

Distribution of Fortune 100 investment returns in DC plans, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Automatic enrollment and auto-increases

Fifty-three percent of Fortune 100 companies automatically enrolled employees in their DC plans in 2014. Of these, 58% also had an automatic escalation feature, which generally increased employees’ contribution percentage by 1% each year. In our 2013 analysis, 48% of Fortune 100 companies had auto-enrollment.

Among plans with auto-enrollment, the initial default contribution ranged from 2% to 10% and was typically 3% of pay in 2014 (Figure 15). Contributions can eventually reach 25% of an employee’s salary through auto-escalation provisions, with the most frequent cutoff for such increases being 6%.

Figure 15. Default employee contribution rates at Fortune 100 companies with automatic enrollment, 2014

Default employee contribution rates at Fortune 100 companies with automatic enrollment, 2014

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Source: Willis Towers Watson analysis of 2014 Form 5500 filings for Fortune 100 companies

Administrative plan expenses

In the majority of companies (56%), administrative plan expenses were shared by employers and employees. Only 13% of employers paid all plan administrative expenses.

Conclusion

DC plans have become increasingly central to American workers’ retirement future. All the Fortune 100 employers offer DC plans, and the vast majority offered them to all employees in 2014. Moreover, almost all of these employers offered matching contributions, and many made non-matching contributions as well. Slightly more than half of these Fortune 100 companies automatically enrolled employees in their DC plan, and many allowed for automatic increases of employees’ contribution percentages over time.


Endnotes

1. This is the ninth such study. For last year’s analysis, see “Defined Contribution Plans of Fortune 100 Companies in 2013,” Willis Towers Watson Insider, February 2015.

2. Ninety-six percent of Fortune 100 employers in this study have a calendar plan year. Investment returns are reported only for calendar-year companies, and other results reflect all companies in the analysis.

3. The data reflect actual contributions made for plan year 2014. One company that had provisions for employer contributions did not provide them for 2014.

4. Eleven additional DC plan sponsors had plan provisions for a discretionary non-matching contribution but did not provide it in 2014.

5. Total contributions represent those provided to a hypothetical newly hired 35-year-old worker making $50,000 a year in 2014. We assume the worker defers the amount necessary to receive the full employer match. Where the company provided a discretionary non-match in 2014 and a range was given, the maximum value was used where the actual value couldn’t be found.

6. Roughly one-third of the Fortune 100 companies that do not maintain employer stock in their plans also do not have publicly traded stock.

7. Investment income is often reported net of investment expense.