Participation in 401(k)s Rise as More Companies Auto-Enroll

Wells Fargo has provided more evidence of the effectiveness of auto-enrollment, announcing an uptick in the participation rates of employees in 401(k) plans administered by the firm. The participation rates rose 13% between 2011 and 2015 among eligible employees. Wells Fargo administers 401(k) plans for 3.8 million eligible participants employed by U.S. companies. This increase in participation rates correlates with more plan sponsors opting for automatic enrollment, now at 40% of Wells Fargo-administered plans compared to 30% in 2011.

• The data show increasing participation rates among younger employees, new hires and lower-earning workers over the past four years.
• Participation in the 401(k) plan among millennials has reached 55% compared to 45% in 2011. For newly hired eligible employees (meaning those who have reached the one year mark of employment), participation has increased from 36% four years ago to 48% in 2015.
• In addition, employees in a pay range of $20,000 to $40,000 in salary are participating at a rate of 59% versus 47% four years ago.

“This is a great set of data demonstrating some very positive behaviors from participants. I get very excited when I see the percentage of employees enrolling in plans ticking up over the last four years because it tells me people understand that participation in their workplace retirement plan is vital,” Joe Ready, head of Wells Fargo Institutional Retirement and Trust, said in a statement. “We know that systematic, pre-tax savings and investing works. The first critical step along that journey is to get people in the plan. In addition, to see such gains among people who are historically the hardest to get saving for retirement is also quite encouraging. People are getting the message that their 401(k) is an important key to a viable retirement.”

Savings rates, company match and average balances

Although participation rates are rising, the deferral rates are relatively flat in the four-year analysis, with 38% of participants saving a minimum of 10% of their salary (which may include employer match) in their 401(k) plan – a modest increase from 34% four years ago. Twenty-eight percent of millennials currently reach a total contribution of 10% of pay, compared to 35% of Gen X and 45% of boomers.

Sixty-two percent of all active participants are taking full advantage of their employer match. When analyzed by generational groups, this breaks down to 54% of millennials, 63% of Gen X, and 70% of boomers who are contributing enough to capture their full company match.

The average 401(k) balance is $93,015–up from $69,802 four years ago, largely due to gains in the stock market.

The number of people with a loan from their 401(k) has remained flat; 19% have at least one loan.

Roth 401(k) popular among millennials

The Roth 401(k) usage is creeping up–with 12% of participants contributing to a Roth 401(k) compared to 8% four years ago. Millennials are the most significant users of Roth, with 16% contributing to a Roth 401(k), versus 11% of Gen X and 7% of boomers. The Roth 401(k) allows participants to contribute after-tax dollars, and withdraw in retirement on a tax-free basis.

“The decision to contribute after-tax money to a Roth 401(k) is an intentional one, because people typically are not automatically enrolled into Roth 401(k) plans,” Ready added. “I am encouraged that the younger participant group is putting thought into what can be a tax diversification strategy when it comes time to take money out of plans in retirement.”

Millennials are the most diversified in their 401(k) investment portfolio

Roth 401(k) usage is not the only category in which millennials have Gen X and boomers beat. Millennials are still the most diversified generation, and are making the biggest gains: 82% are meeting a minimum level of diversification–a minimum of two equity funds and a fixed income fund and less than 20% in employer stock–which is up from 72% four years ago. Gen X and boomers have also seen strong gains in this category, with 78% and 75% respectively meeting the minimum level of diversification (compared to 70% and 68% four years ago).

This improved diversification is most likely due to the broader use of managed investment products, which continue to gain in popularity. Overall, 76% of participants use a managed product (such as target-date funds, which is seeing specific gains from 47% to 62% of participants who have money in target-date funds), versus 65% four years ago. When comparing by generation, 83% of millennials, 75% of Gen X and 70% of boomers use some type of managed product in their 401(k) plan.

Women participate at higher rate than men

In a review of data compiled from 2,036 companies where gender is indicated, there are also some noteworthy differences. Women participate in their 401(k) plans at a slightly higher rate than men: 65% to 62%. The number of women saving at least 10% of their salary is slightly lower: 38% of women vs. 40% of men contribute at least 10% of their salary, and 64% of men are taking full advantage of their company match, compared to 61% of women. Women use managed products more than men – 77% of women compared to 74% of men – which might explain why they are better diversified. Eighty percent of women are meeting minimum diversification criteria compared to 78% of men.

See Also:

• Further Proof that Auto-Enrollment is Key to Saving Earlier for Retirement
• Massive New Retirement Bill Would Expand, Mandate Auto-Enrollment