401(k) plan study supports Financial Education for participants. 401(k) plan participants haven’t changed their behaviors much, despite inflation and market turbulence, according to a new 401k plan study out from T. Rowe Price, cited recently in BenefitsPro.
The firm’s Q2 Reactions Report found that participants haven’t significantly changed their loan, distribution, or withdrawal behaviors. In addition, the T. Rowe Price 401k plan study found:
- 99% of participants who were fully invested in a target date fund didn’t make an exchange
- Participants accessed three times more retirement planning and savings content than for the same period last year
- Employees who have been at a company longer have 48% higher deferral rates on average than new hires
- Hiring and termination rates hit five-year highs in the first half of 2022
“Our research shows that educational content reinforcing the value of leaving money in the plan and maintaining/increasing deferral levels impacts behaviors,” Rachel Weker, Senior Retirement Strategist for Retirement Plan Services at T. Rowe Price, said in a statement, quoted in the BenefitsPro article. “And we also know that inertia plays a large role in savings behaviors, hence the importance of automatic enrollment and automatic increase programs. Contribution rates tend not to change much.”
Apparently, participants are hungry for personal finance education. The content they consumed revolved around financial wellness, budgeting, retirement readiness, and maximizing 401(k) plans. This appears to be a solid opportunity for plan sponsors to reevaluate their existing financial wellness offerings and see if they can be “beefed up” to offer more of this type of content. The plan’s financial advisor, if you partner with one, can be a strong resource for vetting and developing relevant topics that may be valued by your employee population. An employee survey can also help surface which topics are more important to them.
According to Ms. Weker, “Interestingly, even during the pandemic when some people were taking money from the plan, we often saw contribution rates increasing from those same people taking money from the plan.” She adds “The hypothesis being that even when people have an immediate need for money, they recognize the importance of rebuilding their balance for the future. For those participants who are fully invested in target date funds, only 0.2% made an exchange compared to 6.4% of participants not at all invested in target dates.”
The T. Rowe Price 401(k) plan study found that inflation and economic uncertainty may not have much of an impact on retirement plan participants’ behaviors. However, recent studies have shown that rising costs and anxiety have influenced how Americans spend and save. Overall, they are doing less of both. Each 401(k) plan study seems to support the desire for education. With increased and targeted financial education, plan sponsors may be able to entice employees to behave differently. Spending less on “extras” such as dining out, entertainment, and technology helps with overall savings. Those saved dollars can then be redirected to the retirement plan and saving for their future.
