T. Rowe Price did a deep dive into its recordkeeping data and surfaced with a few important points.
Its “Reference Point Report is an annual client data benchmarking report so plan sponsors can review trends and benchmark their progress and participant behavior across the firm’s client base… 'We continue to see the importance and significant impact plan design and financial wellness programs have on keeping participants on track with their financial priorities' by John Sullivan, Editor-In-Chief “
- Plan participation was greater than 79%
- Over 61% of plans at Rowe Price automatically enroll participants, with 37% enrolling at a 6% default deferral
- Average account balances rose to over $100,000, an increase of 8%, although over 34% of eligible participants did not contribute to their plans in 2019
- Employers are increasing match formulas from 3% to a 4% to 5% effective match rage
- Direct rollovers of plan assets increased to 76% in 2019 from 74% in 2018
- Lower rates for cash-out distributions and loans
- Participant usage of loans decreased in 2019 to 22.1%, down from the seven-year high of 24.9% in 2013, but the optional loan provisions included in the Coronavirus Aid, Relief, and Economic Security (CARES) Act could change that trend
- Allocations to company stock investments increased more than 11%
For more information on 401(k) participant behavior and plan design trends, see the article in 401k Specialist
More Good News
Scoring the Progress of Retirement Savers, a recent report by Empower, shows that the median projected income replacement among participants in our study was 64%. In other words, Americans are on track to replace 64% of their current income in retirement.
“Plan sponsors can take several steps to help facilitate savings within a plan. The first is automatic enrollment. We find an 11-point difference in median income replacement percentages between participants who enrolled automatically versus those who opted into the plan. The difference may reflect an important benefit of auto-enrollment: Many participants begin saving earlier in their tenure, because enrollment begins as soon as they are eligible.
A second feature that correlates with higher median income replacement is auto-escalation. Our survey found that people who participate in a plan with this feature achieve a median retirement income replacement of 107%, a full 27 percentage points higher than participants in plans without it.”
For more information, read Empower’s report on Scoring the Progress of Retirement Savers.
ACR# 355767 08/20
