Compare the Q1 carnage to what’s happened over the past decade in retirement plan saving and investing and it once again makes a powerful—if somewhat obvious—case for taking the long view.
Alight Solutions did just that, and the numbers are stark.
Beginning with recent events, the Illinois-based Alight found that between January 1 and March 31 of this year, the average plan balance decreased by 17% and the median rate of return for participants was -20%.
A quarter of people changed their contribution rates, but not necessarily in the way one would think—18% increased (often by auto-escalation), 8% decreased (including 2% who stopped).
Fully 14% of participants made trades with their 401ks yet, for comparison purposes, 21% trading in all of 2019.
Thankfully, only 2.4% of participants took a loan, on par with a typical quarter. However, none of the CARES Act provisions were yet implemented.
Conversely, 2.8% of participants took a withdrawal, about twice what would be seen in a typical quarter (6% in all of 2019).
Comparing it to past decade
Comparing it to a much longer view of course provides much different outcomes, with the average plan balance at an all-time high of $122,150 in 2019. At the beginning of the decade, the average balance was $70,970.
The median return for investors during 2019 was 22.4%, the highest of any year in the decade. The year capped off a bull market decade as the median annualized 10-year return from 2010-2019 was 8.9%.
SEE THE FULL REPORT HERE
The average plan participation rate was 81%, the highest seen over the course of the decade, Alight said.
“Automatic enrollment continues to drive higher plan participation over the past several years as plans with automatic enrollment have an average participation rate of 87%.”
Importantly, four out of every five participants are saving enough for the full employer match.
Key recommendations
Alight offered several key recommendations in the report, including:
Continue to simplify the plan to decrease friction points. Automatic enrollment, escalation and rebalancing are all beneficial features to plan success, but sponsors can further innovate with additional ideas, like integrating DC into annual enrollment for medical plans.
Monitor target-date fund usage. The high rate of partial target-date fund usage suggests that many investors either do not understand the product or that they are seeking additional personalization in their investment portfolio.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
