About Last Year: Plan Sponsors Can Harness the Why Behind the Rise in 401(k) Participation

While it’s unclear if the stock market will retain its strength into 2022, sponsors can harness the information behind the statistics to continue to encourage employees through educational assets like webinars, FAQs, and inter-company information, to increase participation in retirement plans.

The odd upside of the pandemic has been that individuals have been increasing their contributions to their 401(k)s. As we discussed earlier, contributions to 401(k)s haven’t increased as much as 403(b)s, but they are still eye-catching in their growth.[1] “Steady savings, tax-time contributions, and stock market gains helped lift all balances: Average 401(k) balances hit $123,900 in the first quarter, up 36% from Q1 2020….”[2] Furthermore, “Individual retirement account balances [reached] $134,900, on average, in the second quarter, up 21% from a year ago.”[3] One might think this increase in investment is driven by the top, those with the most salary are saving more of their income. The good news is that presumption isn’t fully correct. While the strength of the market is responsible for some of the increase in savings, there is an excellent statistic hiding in these numbers: 37% of employers automatically enrolled new workers in retirement plans. While studies show that about two thirds of employers[4] have an automatic enrollment option, the increase in those automatically enrolling is great news.

Plan Sponsors may be asking themselves if this level of engagement by plan participants has created new needs for information. By digging into the statistics around new participation, savvy sponsors will spot areas where their new participants may want information. Additionally, this kind of analysis may help sponsors find ways to attract even more employees into enrolling.

Specifically, some of this increase in participation may be due to a shift in workers from positions that traditionally don’t offer retirement – like those working multiple part-time jobs in the retail and restaurant industries – to those that do. Since 2021 is considered a workers’ market, meaning short staffing across the board has driven some change in recruiting to focus on attracting workers, more employers may have expanded their retirement offerings. This statistic may show that employees now have better access to information about why enrollment in a retirement plan is beneficial.

It’s also noteworthy that the amount of pay set as savings in those auto-enrollment plans has shifted from 3% to 5% over the last five years. “Today, 34 percent of employers are auto-enrolling at a 5 percent or higher default deferral, versus 19 percent that did so five years ago.”[5]

Additionally, sponsors may want to pay attention to the new statistic that 77% of those enrolled in a retirement plan choose the automatic-adjusted options. That is, employees choose the plans that require the least amount of monitoring. This option may help those who feel less educated or feel like they have less access to information about the markets feel more empowered to invest.

Another key area that sponsors may want to pay attention to is the impact that the SECURE Act had on contributions. Some analysts point to the increase in auto-escalation that the SECURE Act allowed as responsible for the increase in savings in 401(k)s for those participating in safe harbor plans.And the number of employers moving to safe harbor plans has also been on the rise.

In summary, the statistics show that increases in enrollment and savings since 2019 (accounting for the swelling rates of savings) may be the result of increased access to enrollment, increased access to simpler or less involved options for savings, increased demand for benefits, and an increase in the default rate of savings. All of those factors could be related to a rise in the news coverage of the stock market.

Increased access to information may be increasing the comfort level of employees towards investing. For example, the hullabaloo over GameStop’s stock may have included information about how the stock market works and how regulation exists to protect investors. News coverage of Robinhood, both it’s involvement in GameStop as well as social media coverage of investors using Robinhood, may also have added to the knowledge base of employees, making them feel like investing was accessible. The access to Robinhood for small investors (the average transaction size on Robinhood in the first two months of 2021 was around $50may have provided those initially hesitant to invest feel more confident through small investments – in other words, they may have taken baby steps towards investing on Robinhood’s platform, and then when they felt secure toddled over towards traditional retirement accounts.

While it’s unclear if the stock market will retain its strength into 2022, sponsors can harness the information behind the statistics to continue to encourage employees through educational assets like webinars, FAQs, and inter-company information, to increase participation in retirement plans.

[1] https://www.bcgbenefits.com/blog/understanding-403b

[2] https://www.investopedia.com/americans-retirement-savings-show-remarkable-resilience-despite-pandemic-effects-5186434

[3] https://www.cnbc.com/2021/08/19/401k-balances-hit-a-new-all-time-high-fidelity-says-.html

[4] CNBC provides a 65.8% statistic for employers with automatic enrollment

[5] https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/401k-savings-rates-are-up-and-secure-act-may-push-them-higher.aspx

These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.

Back to Blog

Latest Entries

Need a Proposal?

Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering.  Through this examination, we can help you optimize the service you receive.

get xpress proposal