403(b) Employer Retirement Plan Participation Reaches Record Level

New research shows nonprofit worker participation in organization 403(b) employer retirement plans continued its upward trajectory in the midst of the pandemic.

Reaching the highest level since tracking began in 2008, the number of employees participating in 403(b) employer retirement plans rose to 77.2% last year, according to Plan Sponsor Council of America's annual 403(b) Plan Survey. The participation bump was less than 1% over 2019 and 5.2% over 2018 figures.

Automatic enrollment in 403(b) employer retirement plans may have played a role in the year-over-year increase as about 28.7% of organizations have automatic enrollment — a figure 4.3% higher than 2019 and that has been steadily growing over the past five years.

“Nonprofit workers’ continued commitment to retirement plan participation, even in the face of economic uncertainty, affirms the importance of these programs, and the value of the education provided by employers,” Hattie Greenan, director of research and communications at PSCA, said in a statement. “The use of automatic enrollment has been shown to not only increase participation, but participant outcomes.”

Nonprofits lead 401(k) counterparts on certain aspects of their plans. When it comes to offering annuities as a distribution option to provide guaranteed retirement income, 53.5% of 403(b) employer retirement plans offer that option compared to 17.2% of 401(k) plans. Additionally, 403(b) outpace 401(k) plans on access to environmental, social and governance (ESG)-focused investment options. With 37.7% offering ESG options in 403(b) and only 2.6% having the same options among 401(k) plans.

Even though there was overall growth, the effects of the pandemic were evident as well. For 12.5% of nonprofits in sectors that were hit the hardest during the pandemic, plan contributions were reduced or suspended, which lowered the average pay to 4.6% — down from 6.3% in 2019. Workers’ average savings also dropped to 6.2%, compared to 7.2% in 2019. However, automatic enrollment, which is typically 3% or less, may have contributed to this decline as well.

“There is no doubt that the nonprofit sector has been disproportionally impacted by the economic strains of the pandemic, particularly in certain fields, and some had to make the financial decision to cut back on plan contributions and savings,” Greenan said in a statement. “The good news is that this was still a small percentage of all organizations, and even for those, many are already reinstating — or making plans to reinstate — their contributions.”