Record Gains and New Highs: There Is Some Good News, After All

While 2020 was a year of unprecedented bad news, there were some positive developments to note as the year drew to a close. Among them were record-high investment returns and interesting trends in the design of 401(k) plans. Read the article for a bit of good news.

Do you feel like you spent the last year gripping the steering wheel and waiting to see what would happen? You aren’t alone. Still, as we collectively look ahead and the chaos wanes, bits of good news are emerging.

In the investing world, 2020 was a year of records and firsts. The Dow Jones Industrial Average closed out the year at well over the 30,000 mark, setting a new record high as it increased more than 7% from the beginning of the year.

And right on the heels of that good news comes the annual survey from the Profit Sharing Council of America (PSCA). Based upon 2019 data — the most recent available — and released in December of 2020, the PSCA 63rd annual survey showed some record-breaking statistics. This industry-leading survey is eagerly anticipated each year because of the wealth of information presented and the large number of plans involved.

According to the report, 2019 was the third year in a row when new records were set in contribution and participation. More than 90% of employees eligible to participate had a balance in the plan, and nearly the same percentage (87.3%) of eligible employees contributed during the year — an increase from the previous year’s record high of 84.2%. On average, participants are contributing 7.6% of their pay, whereas their employers put in an average of 5.3% of pay, also hitting a new high. Between the two, participants were adding 12.9% of pay in 2019.

Roth accounts, target date funds among design trends

There were some notable changes in plan design trends for 2019. The availability of Roth accounts within 401(k) plans climbed during the year, reaching 75.1%. There has been a steady increase in the availability of Roth accounts over the last decade, rising from 45.5% in 2010. More than one-quarter of employees took advantage of the availability of Roth accounts in 2019, reaching 26.4%, an increase of 3.4% from the prior year.

In 2019, 80% of plans offered a target date fund, which is a significant increase from 2018 when 68.6% made them available. One investment trend that seemed to lose a little traction was in the socially responsible investment (SRI) arena. ESG, or environmental, social, governance and SRI investments accounted for less than 0.1% of plan assets in 2019, and fewer than 3% of plan sponsors responding to the survey reported including such options on their investment menu — representing a slight decrease from 2018. The smallest plans, those with 50 or fewer participants, and the largest — with more than 5,000 participants — were most likely to offer ESG/SRI options: 4.2% of the largest plans and 4.4% of the smallest had them on the menu.

There is much more information available from the PSCA report. You can purchase a copy on the PSCA website at https://www.psca.org.

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Heartland Retirement Plan Services are offered through Dubuque Bank and Trust Company. The information provided herein is general in nature and is not intended to be nor should be construed as specific investment, legal or tax advice. The factual information has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. Heartland Retirement Plan Services makes no warranties with regard to the information or results obtained by its use and disclaims any liability arising out of your use of, or reliance on, it. Products offered through Heartland Retirement Plan Services are not FDIC insured, are not bank guaranteed and may lose value, unless otherwise noted.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; 877-306-5055; www.kmotion.com
© 2020 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this publication are for general information only and are not intended to provide tax or legal advice or recommendations for any particular situation or type of retirement plan. Nothing in this publication should be construed as legal or tax guidance, nor as the sole authority on any regulation, law, or ruling as it applies to a specific plan or situation. Plan sponsors should always consult the plan’s legal counsel or tax advisor for advice regarding plan-specific issues.