6 Striking Trends from New 401k Report
Released July 13, Bank of America’s new 2022 Financial Life Benefits Impact Report examines trends in employee usage and engagement with workplace benefit programs, with a strong emphasis on 401k plans.
“Using our participant data, we’ve identified a number of trends that we are using to inform how we develop new innovative ways to serve our clients and their employees. These insights can also help employers make more informed decisions to support their employees in pursuing their own financial success—while helping their businesses thrive,” said Lorna Sabbia, Head of Retirement and Personal Wealth Solutions Bank of America. “Although employers are broadening financial wellness programs with more services, significant work is still needed to increase employee utilization of these benefits.”
The 11-page report is filled with details about 401k participation and deferral rates, account balances, financial wellness program utilization, and investing behavior. What follows are six key takeaways.
Millennials not leveraging the full potential of a 401k
Among 401k plans recordkept by Bank of America, 58% of all eligible employees participate, including 62% of men and 55% of women.
Millennials are the least likely to participate in a 401k plan (54% vs. 65% of Gen X and 59% of Baby Boomers), and 70% of Millennials contribute less than $5,000 annually. That is significantly higher than Gen X (54%) and Boomers (51%).
In addition, only 4% of Millennials are contributing the allowable maximum ($20,500 in 2022), compared to 12% of Gen X and 14% of Boomers. Less than one in 10 401k participants overall contribute at the allowable limit.
• SEE ALSO: How Consistent 401k Participation Pays—Big: Study
NEXT PAGE: Gen Z women outinvesting Gen Z men
Gen Z women are closing gender gaps in 401k balances
Overall, men have 55% more money in 401k balances ($108,000 vs. $70,000) than women. But interestingly, among the youngest retirement savers in the workforce—Gen Z—women (up to age 26) have overtaken Gen Z men in total retirement savings, with 3% higher account balances on average.
Millennial women have just 80% of the average 401k account balance of Millennial men, while Gen X women have 65% of their male counterparts. Boomer women have 53% and Silent Generation women 33%.
• SEE ALSO: 401k Savers ‘Stay the Course’ Despite Market Volatility
NEXT PAGE: Younger generations driving ESG
Younger generations driving increase in ESG investments
The research found employees have significantly increased the portion of their assets in Environmental, Social and Governance (ESG)-focused investments. Overall, 15% of employees invested in ESG funds, which is a 50% increase since 2020. The average amount they have invested in ESG funds is $13,400, which marks a 30% increase since 2020.
Millennials are leading the way, with 52% investing in ESG funds compared to 32% of Gen X and just 14% of Boomers. Men make up 53% of ESG investors.
Only a small number of employers—14%—are offering ESG-focused investment options.
• SEE ALSO: Investors Interested in ESG, but Education Lacking
NEXT PAGE: Younger employees like TDFs
Use of TDFs increasing among younger employees
BofA found the use of target-date funds is significant—and increasing, especially among younger employees. Millennials have almost twice the amount of money invested in TDFs as Boomers.
Some other interesting TDF stats from the study? When they are offered, more than eight in 10 employees invest in TDFs, and often invest their full account balance. The percentage of BofA recordkept 401k plans offering TDFs increased from 56% in 2020 to 60% in 2021.
• SEE ALSO: Younger 401k Participants Really Like TDFs, New Study Finds
NEXT PAGE: Auto features drive positive 401k engagement
Automatic features drive positive 401k engagement
Employee participation rates more than double when plans have an auto-enrollment feature. BofA found 84% of employees participate in a 401k when it has auto-enrollment, while only 37% of employees participate in 401k plans without auto-enrollment.
When it comes to default contribution rates, 90% use a default rate of 3% or higher, while only 30% of plans use a default rate of 5% or higher. Of plans with auto-enrollment, 55% also have auto-escalation, and 96% of those increase deferrals at 1% per year.
• SEE ALSO: Defaults Matter: T. Rowe Price Analysis Shows Just How Much
NEXT PAGE: HSA investing on the rise
More employees investing some of their HSA assets
Health Savings Account usage of the investment component of their account increased by 2-3% across all generations YOY. One-quarter (26%) contributed more than they withdrew, with the average account balance among BofA participants at $4,356 (up 23% since 2020), which is 15% higher than the national average of $3,798.
• SEE ALSO: Inflation Sparks Big Jump in 2023 HSA Contribution Limits