First the good news: Average 401(k) balances have increased by $7,250 (9.6%) so far this year, according to Bank of America’s Q2 2023 Participant Pulse survey, released today. The average 401(k) account balance as of June 2023 was $82,300, up from $75,050 at year-end 2022.
“The data from our report tells two stories—one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals.”
Bank of America’s Lorna Sabbia
Now the bad news: the same survey also found the number of participants taking hardship withdrawals from their 401(k)s increased 36% year-over-year, and average contributions trailed off in Q2 compared to Q1 as well.
“The data from our report tells two stories—one of balance growth, optimism from younger employees and maintaining contributions, contrasted with a trend of increased plan withdrawals,” said Lorna Sabbia, Head of Retirement and Personal Wealth Solutions at Bank of America. “This year, more employees are understandably prioritizing short-term expenses over long-term saving. However, it’s critical that employees continue to invest in life’s biggest expense—retirement.”
The survey found 0.52% of participants took a hardship withdrawal in Q2 2023, up from 0.4% in Q4 2022 and 0.3% in Q2 2022. The analysis found 15,950 participants took hardship distributions during Q2, which is up 12% from Q1 and up 36% from Q2 2022.
The average participant hardship amount in Q2 was $5,050, which is comparable to Q1 ($$5,100) and down slightly from $5,400 in Q2 2022.
The quarterly survey monitors plan participant behavior in Bank of America recordkeeping clients’ employee benefits programs, which is comprised of more than 4 million participants as of June 30, 2023.
401(k) loans
When it came to taking loans from their plans, the new survey found 2.5% of participants—about 75,000—at plans recordkept by BofA borrowed from their 401(k) in Q2 2023. That’s up from 1.9% (56,000 participants) in Q1 and up from 2.3% in Q2 2022.
The average loan amount per participant was $8,550, consistent with Q1 and down slightly from Q2 2022 ($8,700).
And of participants taking a loan, 13.9% had at least one loan in default as a Q2, down slightly from 14.3% in Q1. Loans in default total $450 million vs. $460 million in Q1. Generations with the highest percent of loans outstanding showed Gen X with 22.8% and Millennials at 14.5%.
Contribution rates
Amid the rising 401(k) plan withdrawals, employee contributions remained steady, with the average rate remaining at 6.5% throughout the first half of 2023. But the average contribution in Q2 was $1,460, which is down 23% from $1,880 in Q1 (but the BofA report notes that is in line with the Q2 2022 average of $1,440).
Back to the good news. More participants increased their contribution rate than decreased their rate (10.2% vs. 2.2%) in Q2, which was led by Gen Z and Millennial employees (19.3% vs. 2.6% and 11% vs. 2.6%, respectively).
HSA and financial wellness trends
To provide a more holistic look at confidence around financial preparedness, Bank of America expanded the quarterly Participant Pulse report series to examine engagement across Health Saving Accounts (HSAs) and overall feelings of financial wellness, in addition to 401(k) trends. Key HSA and financial wellness findings include:
• HSA account balances increased by 11.9% over year-end 2022. Average HSA account balances increased from $3,931 to $4,397 in the first six months of 2023.
• Many HSA account holders continue to save their contributions for future expenses. Nearly 4 in 10 account holders contributed more than they withdrew in Q2, consistent with year-end 2022.
• Baby Boomers invested their HSAs at higher rates than other generations. On average, only 12% of account holders invested their HSAs for future growth in Q2, with Baby Boomers leading at 15%. In addition, more men invested than women (18% vs. 11%).
• Feelings of financial wellness declined slightly. Out of a possible 100 points, the average financial wellness score for employees was 56, down one point from 57 at year-end, with women trailing men (52 vs. 59).
SEE ALSO:
• BoA ‘401(k) Participant Pulse’ Report to Track Participant Confidence
• Divide Doubles Between High, Low-Income Worker Retirement Account Balances