Retirement plan participant data from Bank of America
underscores that plan sponsors must educate employees about the benefits of
contributing to their 401(k).
According to the bank’s “2022 Financial Life Benefits Impact
Report,” despite 58% of eligible employees participating in a 401(k) plan, 61%
of them contributed below $5,000 last year.
The study also found that fewer than one in 10 participants’
contributions reached the ceiling on elective deferrals, under IRS Section
402(g)—that is, $19,500, last year.
While the data on participation is “promising,” says Kevin
Crain, head of retirement and personal wealth solutions research at the bank,
the research highlights a “clear need for education on the benefits of
maximizing retirement savings contributions.”
“Education combined with personalized action helps employees
where they need it most,” he says.
For plan sponsors, providing education that is paired with
actions participants can take also benefits employers, “as employee financial
wellness results in increased focus, more productivity and better morale,”
Crain says.
The report says Millennials are failing to optimize the
potential of their 401(k) benefits—70% contribute less than $5,000
annually—compared with 54% of Generation X and 51% of Baby Boomers. Millennials
also are the least likely to participate in a 401(k) plan: 54% participate vs.
65% of Gen X employees and 59% of Baby Boomers.
Additionally, just 4% of Millennials contribute up to the
IRS annual limit, compared with 12% of Gen X participants and 14% of Baby
Boomers, the report says.
“For plan sponsors, this also creates an opportunity to
expand offerings to adopt auto[matic]-enrollment and auto[matic]-increase
features,” says Crain. “These tools help ensure the employees are capitalizing
on their 401(k) plan, and are powerful in driving both employee engagement and
increased contribution amounts.”
Plan sponsors increasingly also use personalized tools,
frequently digital, to engage with and educate retirement plan participants.
Bank of America has several such tools it offers through an
investment advisory program it launched last year. And it brought to market
“Erica,” a suite of enhancements to the recordkeeper’s Benefits OnLine digital
retirement and benefit services app for retirement planning, which uses
artificial intelligence.
Looking across all generations in the study, women continue
to trail men in 401(k) participation rates—55% vs. 62%, respectively. Men also
have 55% more in 401(k) balances—$108,000 vs. $70,000, respectively, the
research found. However, in 2021, Gen Z women passed Gen Z men in total
retirement savings, with 3% larger account balances on average, the report
says.
“While women are still trailing men [in their] 401(k) plan
participation rates, younger women are showing promising gains,” says Crain.
“Plan sponsors need to build on this momentum. Women have fundamentally different
financial journeys than men—from spending more time out of the workforce, to
funding longer lives—and employers have an important role to play in providing
personalized education, tools and advice on the unique challenges women face.”
The report was based on proprietary data from 3.1 million
participants in Bank of America employee benefits programs who had positive
retirement balances as of December 31, 2021.
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