Employee Retirement Plan Participation in 2020 On Par with 2019
It goes without saying that 2020 was an unprecedented year that changed the lives of nearly all Americans. This includes several financial impacts that arose as lockdowns went into effect and as businesses’ sales suffered. Nevertheless, Bank of America’s 2021 Financial Life Benefits Impact Report (which looks at figures from the year prior) shows that many employees continued saving for retirement despite the challenges.
According to the latest report, 58% of eligible employees participated in their employer-sponsored retirement plans last year. This figure was actually in line with 2019’s results. In fact, the average retirement account balance grew year over year, rising from $74,000 in 2019 to $81,000 last year. Overall, employees put an average of 6.5% of their pre-tax earnings toward their retirement — which was also comparable to the year prior.
Taking a closer look at the figures, those in Generation X were more likely to contribute to retirement plans when compared to other generations. While 64% of Gen Xers reported utilizing employer-sponsored plans, the rate dropped to 53% among Millennials. Interestingly, the South Atlantic region was found most likely to participate in such plans, with 86% of employees in this area doing so. Also, not surprisingly, the participation rate increased significantly when employers utilized an auto-enroll function. Among employees of such companies, 86% contributed to plans.
During the pandemic, the CARES Act (which also authorized direct payments to many Americans, funded the SBA’s Paycheck Protection Program, and more) allowed employees to tap their 401(k) savings without some of the penalties typically associated with this activity. However, BofA’s study found that few employees ended up utilizing this option, with only 10% reporting taking CARES Act distribution. Of those who did, the average amount taken was $17,901. Additionally, although employees in the South Central region of the U.S. were most likely to take such distributions, those in the Northeast had a larger average withdrawal amount. Meanwhile, 17% of employees did borrow funds from their accounts, with the average loan amount coming in at $7,788.
Commenting on the latest report findings, BofA’s head of Retirement and Personal Wealth Solutions Lorna Sabbia said, “Over the last year, employees across various industries continued to make progress toward their financial goals in the face of unprecedented challenges.” Sabbia added, “At Bank of America, we’ve been inspired by the resiliency of employees and employers alike, and proud of the work we’ve done together to help employees continue preparing for retirement and to be more successful in their daily financial lives.”
While it’s encouraging to see that employees’ retirement savings weren’t terribly derailed by the pandemic, it’s important to remember that this isn’t necessarily the case for everyone. For example, while current employees may still be contributing to their plans, the study likely doesn’t account for those who may have been laid off during the year. Therefore, it could be some time before we see the true financial impact that 2020 had on future retirees.