Retirement participants in the year of the pandemic: Who saved, why, and how
Bank of America report found gender and regional differences in plan participation, gender differences in CARES Act use, as well as several factors that helped participants stay engaged.
Retirement plans remain one of the most valuable benefits available to employees, who count on their employers to offer support for retirement planning and education, tax-deferred investment vehicles and access to investment guidance. The majority of employees who are offered a retirement savings benefit at work elect to take it, according to Bank of America’s Financial Life Benefits Report 2021.
The study found more men than women participate in retirement savings plans at 61 percent vs. 55 percent, and married employees are also more likely to enroll in a workplace retirement savings plan at 74 percent compared with 62 percent of single employees.
Age and location have an impact on 401(k) plan participation rates, the study found. Gen X men and women have the highest participation of eligible employees at 64 percent, followed by Baby Boomers at 59 percent, Millennials at 53 percent and Gen Z at 24 percent. Employees in the South Atlantic region also boast a high participation rate at 84 percent.
Who contributed
Despite the pandemic, employees showed resilience last year and a desire to continue working toward their retirement goals. The average retirement account balance grew to $81,000 last year compared with $74,000 in 2019. Men have a higher average account balance of $98,000 than women, who have an average account balance of $62,000.
On average, employees maintained their pre-tax contribution rate last year at about 6.2 percent. Older employees have a higher contribution rate than younger employees, with Baby Boomers contributing an average of 8.2 percent, compared with millennials who have an average contribution rate of 5.3 percent.
Who took advantage of CARES Act provisions
However, about 10 percent of plan participants took advantage of CARES Act provisions that allowed them to take a penalty-free distribution from their retirement account to help with immediate financial needs, with average withdrawals of nearly $18,000.
Men withdrew about 50 percent more than women on average, and Gen X were the most likely participants to take a distribution and had the highest average distribution amounts. Borrowing rates remained steady at about 17 percent of participants, with an average loan of $7,800.
How plan design factored in
Plan design that includes automatic features helped increase participation, according to the report. Participation in plans with automatic enrollment features reached 86 percent, while those without auto-enrollment features have participation rates of about 38 percent. Just about half of plans that have auto-enrollment features enroll new hires only. Almost all plans set a default contribution of at least 3 percent of salary, and those with default contributions above that amount tend to see higher participation, the report found.
Thanks to the pandemic, digital engagement in retirement plans has increased dramatically. More than one-quarter of participants with BoA accounts have digitally linked their accounts, and digital logins, online transactions and benefits application use were all up last year compared with 2019.
How investment choices factored in
Target-date funds remain a popular investment choice among 401(k) plan participants, and employers are increasingly offering TDFs within their investment choices. Fifty-three percent of participants in plans with TDFs have all their money in TDFs, and 98 percent of those participants have all of their assets in a single TDF. Meanwhile, sustainable investment choices are gaining momentum, but are not yet mainstream, said the report. Plans with an environmental, social or governance profile grew 9 percent last year, and they are an especially popular choice for millennials, which represent 60 percent of those who have invested in ESG funds.
Bank of America noted it launched a financial wellness tracker last year, which found women lag behind men in financial wellness scores. Women tend to do a better job protecting assets they have, but they trail men when it comes to managing expenses, managing credit card debt, planning for unexpected expenses, preparing for retirement and managing long-term debt.
A concern of many: future health care cost planning
Planning for health care expenses in the future and in retirement continues to be an area of opportunity for employers to help their employees, especially younger employees who reported feeling less prepared to handle future health care costs than Baby Boomers. Only about half of employees are preparing for future health care expenses, the report said, although it noted participation in Health Spending Accounts has been increasing. Men tend to be more engaged with HSAs, maintaining higher balances, lower spending levels and more aggressive growth behaviors than women, the report said.
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