Retirement Plan Access Can Secure America’s Future
Retirement plan access will hopefully open opportunities for American workforce. As the result of the passing of the SECURE Act, more Americans may soon have retirement plan access. The passage of the SECURE Act in late 2019 should be a game-changer for retirement plan access and security in America. Among other important provisions, this landmark legislation makes it easier and less costly for employers to offer workplace retirement plan benefits for employees. By offering workers the ability to participate in a 401(k), 403(b) or similar retirement plan at work, employers have an opportunity to not only enable employees to save more for the future, but to help them feel more confident about that future.
A recent study from T. Rowe Price backs this up. The fifth annual “Retirement Savings and Spending” study from the global asset management company shows that individuals who have retirement plan access and participate in 401(k) plans are more confident about their retirement than those who don’t. In fact, the T. Rowe Price research revealed that pre-retirees aged 50 and older who participate in a 401(k) plan are 16% more likely to be confident about their retirement security than those who don’t.
“Our findings support that a 401(k) plan is a game-changer in terms of shaping health financial behaviors as well as ultimately resulting in more confident individuals, Sudipto Banerjee, vice president of retirement thought leadership at T. Rowe Price, said in a statement. “These plans provide a structure that encourages saving by allowing people to pay themselves first. We believe that 401(k)s are an important, foundational first step toward a successful retirement.”
For the first time, T. Rowe Price surveyed both eligible 401(k) plan participants and individuals without retirement plan access through a 401(k) plan. This yielded some interesting findings about their financial behaviors and attitudes. Specifically, the T. Rowe Price study found that:
- Individuals who have access to a 401(k) plan save significantly more for retirement, regardless of household income. Even among households earning incomes of $25,000 or less, those who participated in a 401(k) plan saved 10 times more on average than those who didn’t have access to a 401(k) plan, and 20 times more than those who have access to a 401(k) plan but choose not to participate.
- Eligible participants who elect not to participate in a 401(k) plan are worse off than those who don’t have access to one at all. “Plan participants have a median household asset balance of $172,000 compared to the median of $7,000 for workers without plan access. Eligible nonparticipants have a median asset balance of $2,000,” according to the survey results.
- Individuals who participate in a 401(k) plan are more likely to report progress toward their financial goals than eligible nonparticipants, such as paying down student loans (72% and 38%, respectively) and saving for emergencies (73% and 41%, respectively).
According to T. Rowe Price, 401(k) plan sponsors and service provides have an opportunity to leverage plan design and behavioral finance to maximize savings rates and retirement readiness. The firm suggested, “[Employers and retirement plan service providers] can add auto-increase defaults and provide tools to track progress for current participants and provide access to debt management tools to eligible nonparticipants. Plan sponsors that offer retirement plan access should also consider the integration of financial wellness programs which provide tools and resources that can educate and empower individuals to take small but purposeful steps toward long-term financial success.” The SECURE Act has made it easier for more companies to offer a 401(k) plan for their employees — these suggestions from T. Rowe Price offer employers’ food for thought when it comes to optimizing their 401(k) plan designs to improve retirement confidence and outcomes.