Bank of America (BoA) announced this morning the launch of a new report set to increase participant confidence in retirement planning and overall financial wellness.
The 401(k) Participant Pulse is a new series of quarterly reports providing real-time insights on the state of participant confidence and sentiment towards future savings, in an effort to uncover how short-term economic trends (like the current inflation and market volatility) are impacting long-term savings and financial planning. The tool will gauge sentiments from over three million 401(k) plan participants.
“We are deeply committed to investing in research that helps us better understand how current financial realities may be affecting consumers’ long-term financial health,” said Lorna Sabbia, head of Retirement and Personal Wealth Solutions at Bank of America, in a statement. “Long-term financial planning is a critical metric we need to monitor when considering the health of an individuals’ financial wellbeing, as well as the economy as a whole.”
In their research, BoA finds less participants are contributing to their retirement plan accounts. The average plan participant contribution rate fell from 6.6% at year-end 2021 to 6.4% in 2022, with 26% of participants contributing 3% or less to their plan.
While contributions are lower, borrowing remains quiet
BoA findings suggest that while 401(k) contributions are decreasing, the rate of loan activity and hardship withdrawals remains low.
On the loan side, smaller numbers of plan participants took 401(k) loans in Q4 2022 than in Q3 (2.1% vs. 2.3%) and the average loan amount in Q4 was $7,500, the lowest average for all four quarters in 2022. However, loan defaults are growing. 15.9% of loans were in default in Q4 2022, up from 15.7% in Q3. Additionally, by year end, loan defaults totaled more than $450 million.
A smaller number of participants took hardship distributions in Q4 2022, with the average at 0.4% (down from 0.5% in Q3) and the number of participants totaling 12,350 (down 18% compared to Q3). The average hardship amount also declined in Q4 from Q3 by 8%.
Millennials lead in savings while Gen Xers drive borrowing
BoA research found that 47% of Millennials contributed 7% or more to their plan than any other age group. Meanwhile, Baby Boomers had the highest percentage of participants (43%) contributing 3% or less.
More than half of loans taken in 2022 were participants ages 30-49. Gen X (age 43-58, according to BoA) had more participants (3.1%) with loans in default at year end than any other generation.
SEE ALSO:
- Fidelity 401k Report Card: Silver Linings Among More Declines in Q3
- Most Americans Coping with Inflation By Cutting or Halting Retirement Contributions
- Inflation, Market Uncertainty Could Trigger a 2023 Recession
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
