NEW YORK (MainStreet) — Despite the frequent gloomy reports, some Americans are apparently conquering their retirement challenge. According to a recent T. Rowe Price survey, nearly 90% of workers who have retired in the last five years say they are satisfied with their life-after-work so far, and almost three-quarters feel they are better off financially than their parents at the same age.
The 401(k) is the cornerstone to a comfortable retirement, and the plans are better than ever. There are more and better investment choices, the likelihood that your employer will kick-in with matching contributions and most importantly, lower costs than ever.
The Investment Company Institute (ICI) and BrightScope recently analyzed more than 35,000 401(k) plans, determining the most-common features and fees offered to American workers. These averages can serve as a benchmark for the options and standards you should expect in your company's retirement plan.
Fees are still falling. BrightScope says total plan costs have been going down since 2009, with overall average costs about 0.91% of assets, as of 2012. However, drilling down even deeper into the data, the research found that the average participant pays even less: 0.53%. That includes administrative fees, advice and investment management fees. New regulations stipulate that plan providers disclose all fees, so it should be simple enough for you to compare your plan's expenses to the national average.
Investment options are better. The report says the average 401(k) plan offers 25 investment options: about 13 equity funds, three bond funds and six target date funds. Small plans – those with less than $1 million in assets – offer about 20 investment options. And more and more plans are offering index funds, which generally have lower expense ratios.
About 80% of larger plans offer matching contributions from the employer. Of course, this can vary with the size of the employer, but about four-fifths of all plans with 100 participants or more offer employer matches. Unfortunately, smaller plan sponsors have become slightly less likely to kick-in a match. But of all the companies that do, the most common employer match is 50% of contributions up to 6% of salary.
More plans are making the first move for you. In an effort to spur worker savings, more plans are offering automatic enrollment. Of course, the employee has the right to opt-out or adjust the contribution rate but of the plans with this feature, the most common is to automatically defer 3% of salary. Some plans are also offering the option to automatically raise the contribution rate of employee deferrals, called an "auto-increase" or "auto-escalation."
--Hal M. Bundrick is a Certified Financial Planner and contributor to MainStreet. Follow him on Twitter: @HalMBundrick