UPDATE – Follow this link for the results of the 2022 Financial Life Benefits Impact Report.
Most American retirement savers didn’t let the COVID-19 pandemic sideline their efforts to grow their 401ks despite the challenges of 2020.
A new report released today by Charlotte, N.C.-based Bank of America found that 55% of eligible employees participated in their workplace retirement plan offerings in 2020, and the average 401k account balance grew to $81,000 in 2020 from $74,000 in 2019.
Bank of America’s “2021 Financial Life Benefits Impact Report” monitors plan participants’ behaviors and sponsors’ adoption of new plan design features and services in Bank of America’s proprietary employee benefits programs, and reveals new trends in 401k and Health Savings Account (HSA) activity amid the pandemic.
And score another point for the power of auto enrollment. While overall 55% of employees participated in their workplace retirement plan—consistent with pre-pandemic participation rates in 2019—among employers who use the auto enroll feature within their 401k, plan participation jumps to 86%.
Plans without auto enrollment had just 38% participation. Further, in plans with auto enrollment, 51% of them also auto-increase their participants.
“Over the last year, employees across various industries continued to make progress toward their financial goals in the face of unprecedented challenges,” said Lorna Sabbia, head of Retirement and Personal Wealth Solutions at Bank of America. “We’ve been inspired by the resiliency of employees and employers alike, and proud of the work we’ve done together to help employees continue preparing for retirement and to be more successful in their daily financial lives.”
Insights from the Financial Life Benefits Impact Report exploring employee usage and engagement with workplace financial benefit programs and solutions are based on more than 3 million participants in 401k plans administered by Bank of America.
What follows are more of the report’s key findings.
Retirement saving trends during the pandemic
Despite challenges for many, only 10% of 401k plan participants took a hardship distribution made possible by the CARES Act, at an average amount of less than $18,000 per participant.
CARES Act distributions outpaced standard hardship distributions 10-to-1, and just 17% of participants took a loan against their retirement plan assets, consistent with 2019 rates.
Employees taking control of health savings
Average balances in Health Savings Accounts (HSA) increased 17% in 2020, with employee contributions jumping 10%. Bank of America HSA participants have an average balance of approximately $3,400—25% higher than the national average.
Also, 35% of HSA balances were saved for future use, which is 25% higher than the national average; and 38% of assets held in Bank of America HSAs are invested in the markets for potential future growth, which is 30% higher than the national average.
Men seem to be outpacing women on planning for future healthcare costs, with 74% more men having an HSA than women, and with an average account balance 49% higher than women. This is especially troubling given women are likely to face higher healthcare costs in retirement due to living longer than men.
Gender gaps in financial wellness and saving for retirement
On average, women’s financial wellness scores—a figure calculated based on responses to questions and underlying calculations considering financial information and behaviors—are 13% lower than men’s (58 vs. 67).
In addition, women are less likely to participate in their workplace retirement plan (55% take part compared to 61% of men) and lag men in average retirement plan balances ($62,000 for women vs. $98,000 for men).
Women also have a lower retirement contribution rate of 6.2% compared to 6.8% for men. The overall average contribution rate was 6.5%, consistent with 2019. Not surprisingly, Baby Boomers had a higher average contribution rate of 8.2%.
Digital engagement continues to increase dramatically
The past year has also accelerated the pace of digital engagement. Digital logins to Bank of America’s Benefits OnLine increased 31%, from 2019 to 2020, and mobile app usage was up 87% over the same time period.
In addition, more than 25% of participants who have a broader financial relationship with Bank of America have now digitally linked their financial benefit accounts for a broader view of their financial lives online and within the mobile app.
Sustainable investment options gaining popularity
401k plans offering investments with an environmental, social or governance (ESG) profile grew nearly 10% in 2020. When offered within their employer’s retirement plan, 10% of employees invest in these funds—among which 60% are Millennials.
“The future of workplace benefits needs to combine highly personalized solutions with a seamless, digital experience—allowing plan sponsors to provide relevant guidance and meet employees right where they are,” said John Quinn, Managing Director, Head of Institutional Retirement Products and Platforms at Bank of America. “Our goal is to partner with employers to provide wellness programs that address the diverse needs of their workforce and help employees be financially successful today and in the future.”
TDFs remain a popular investment choice
The study found 53% of participants in plans with target date funds have all of their plan funds in the TDFs. And 98% of these participants have all of their assets in a single TDF.
SEE ALSO:
- 401k Balances Hit Record Levels Again: Fidelity
- COVID-19 Retirement Plan Loan Recipients Took More Than Needed
- Majority of 401k Participants Opt for ESG: Schroders
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
