Automatic solutions adoption continued to rise in 2022, finds a new report by T. Rowe Price.
The firm’s annual Reference Point, a benchmarking report analyzing data on 401(k) plan design and participant behavior, found that plan adoption of automatic enrollment rose to 85% in 2022.
Participants with automatic enrollment in their workplace plans were likelier to participate, at 86% in 2022. This was compared to a 37% participation rate for plans without the feature. Overall participation rates across all plans fell from 68% in 2021 to 66% in 2022, while employee deferral rates remained flat among participants ages 60 and under, down from 8.5% in 2021 to 8.4% in 2022. Those over age 60 made no changes or slightly increased deferrals, finds T. Rowe Price.
Adoption of automatic increase solutions also grew in 2022 to 49%, up slightly from 48% in 2021. Additionally, since 2017, when the 6% default rate outpaced the 3% standard, more plans have continued the trend to introduce higher default rates, says T. Rowe Price.
Account balances dropped in 2022
After peaking in 2021, average account balances fell from $124,000 to $101,000 in 2022, a decrease of 18%. This was a second largest decline in the past 15 years, says T. Rowe Price in its report, with the first being the 27% drop from 2007 to 2008 during the Great Recession.
Account balances for participants ages 70 and over decreased by an average of 8%, likely because older participants are probable to allocating to money market/stable value rather than stocks, which saw a steep drop last year.
According to the report, participants did not stop or reduce contributions in reaction to market volatility in 2022, there the decrease in account balances were “somewhat muted” relative to the stock market decline, T. Rowe Price says.
Additional findings
Other key points in the study include:
- A majority of retirement plans (97%) now offer target date investments, and 44% of overall assets are invested in a target date investment.
- Plan adoption of Roth contributions increased from 83% in 2021 to 87% in 2022. As of the end of 2022, 13.2% of participants were making Roth deferrals, up from 4.7% a decade ago.
- Loan usage remained below the pre-pandemic average: 18.3% of participants had a loan in 2022, compared with 18.5% in 2021 and 22.1% in 2019. In general, loan usage has been declining for the past 10 years.
- Hardship withdrawal usage returned to pre-pandemic levels in 2022: 1.3% compared with 0.8% in 2020 and 0.9% in 2021, the average amount decreased from the 10-year high in 2021, dropping from $10,554 to $9,006.
SEE ALSO:
- T. Rowe Price Buys Retiree, Inc. to Bolster Retirement Income Capabilities
- 5 Notable Participant Behaviors Identified in T. Rowe Price 401(k) Report
- 3 Key Themes Shape 2023 Retirement Outlook: T. Rowe Price
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.
