Retirement plan participation has survived the Covid-19 Pandemic. Despite the pandemic, employees still value workplace retirement plans. Covid-19 did not alter retirement plan participation and savings much and plan designs with digital offerings can help engage more participants.
These were just some of the findings revealed in Bank of America’s new Financial Life Benefits Report 2021. The study, cited in a recent BenefitsPro article found that employees who are offered a retirement savings plan at work tend to participate. Gen X men and women have the highest retirement plan participation rates of eligible employees (64%); Baby Boomers are a close second (59%). Millennials aren’t far behind, with slightly more than half (53%) of eligible employees participating. Gen Z are the laggards, with only 24% choosing to participate in workplace retirement savings plans.
In addition, Bank of America found, employees continued retirement plan participation in saving toward their retirement goals. This, despite the uncertainty and volatility that dominated the Covid-19 pandemic. On average, retirement account balances grew to $81,000 in 2020, compared to $74,000 in 2019. In addition, employees maintained an average contribution rate of about 6.2%.
Despite the uptick in savings rates, around 10% of employees chose to take advantage of the CARES Act provisions that allowed them to take a penalty-free withdrawal from their retirement account to help manage immediate financial needs. The average withdrawal was nearly $18,000. Men withdrew about 50% more than women on average, and Gen X were the most likely to take a CARES Act distribution. Gen X also had the highest distribution amounts. Borrowing stayed flat at around 17% of participants, with an average loan amount of $7,800, according to the Bank of America study.
Plan designs with automatic enrollment features helped to boost retirement plan participation. Retirement plan participation in plans with automatic enrollment reached 86%; those without had participation rates of around 38%. The default deferral rate in most plans was at least 3% of salary, however, plans with higher default contribution rates had higher participation rates, the study found. One interesting finding was that digital engagement in retirement plans has increased significantly, thanks in large part to the rise in virtual interactions necessitated by the pandemic. More than one-quarter of participants with Bank of America accounts have digitally linked their accounts. In addition, digital logins, online transactions, and benefits application all rose in 2020 compared to 2019.
Target date funds (TDFs) continue to remain a popular investment choice for participants. More than half (53%) of participants in plans that offer TDFs are allocated entirely to TDFs; 98% have all of their assets in a single TDF. ESG funds are also gaining in popularity, particularly among Millennials, Bank of America found.
Employees report feeling particularly unprepared with regard to planning for healthcare costs in retirement. Younger employees said they feel less prepared than Baby Boomers. In addition, only about half of employees said they are preparing for future healthcare expenses. Even so, health savings account (HSA) participation is on the rise, especially among men. Employers have an opportunity to help employees understand the importance of saving for healthcare costs in retirement, as well as educate them on benefits like HSAs that can help them set money aside for future medical expenses.
