While market volatility certainly impacted retirement savings in 2020, new research shows participants saved more, account balances grew, and plan sponsors stood firm.
“reference point“T. Rowe Price’s annual benchmarking report shows that the average pre-tax deferral rate for 401 (k) participants increased from 7.6% in 2019 to 7.8% in 2020, the largest annual increase since 2016.
And despite the market volatility earlier in the year, the average total account balance rose 13% from $ 100,600 to $ 113,900 by the end of 2020, when the market rebounded. Although the pandemic created economic uncertainty, more than 90% of attendees stayed the course by not making withdrawals from their retirement accounts.
Based on the company’s full-service customer data, the report offers annual data and analyzes of participant behavior and planning. New this year are insights from the perspective of the global pandemic.
“While the financial, physical, and emotional stresses caused by the pandemic have and will continue to have an impact on the planning and outcomes of the retirement plan, it was encouraging to see that plan sponsors and participants have committed to retirement planning despite everything,” notes Kevin Collins, director of retirement plan services at T. Rowe Price.
Plan design changes
Further results show that the number of plans that add auto-enrollment slowed in 2020, but the proportion of plans that use it increased from 61.8% in 2019 to 62.2% in 2020 T. Rowe Price continues. The same applied to auto-increases, which rose from 79.8% in 2019 to 81.2% in 2020. Part of the plan promotes how important it is to offer your employees enough opportunities to save despite or perhaps because of the pandemic “, It says in the study.
In addition, deferral rates rose from 4.4% to 4.5% last year.
Roth 401 (k) s also continued to gain traction in the market. Since 2016, plans with Roth contribution options have increased from 60% to 80% in 2020, according to the company. In addition, almost 10% of eligible participants made use of this service in 2020, compared to 8.5% in the previous year.
And while most plans retained their plan design throughout the pandemic, the study notes that some plans had to make changes.
During the peak of market volatility in 2020, 10% of plans made changes to their plan design. From 2019 to 2020, the percentage of plans offering a match decreased from 82% to 77% as some plans suspended their company matching contributions in 2020.
However, of the plans that made changes, nearly half (46%) partially or fully restored their original draft plan, including the Games, within the first month of the New Year, suggesting that the changes are temporary and in response to economic uncertainty, the study notes.
For those who reduced or suspended their pooled contributions, the greatest impact was on plans with 1,000 to 5,000 attendees and plans with assets between $ 150 million and $ 500 million.
Unsurprisingly, two industries hit hard by the pandemic were retail and leisure and hospitality, both of which saw above-average declines in adjusted posts of 11% and 17%, respectively, in 2020.
T. Rowe Price also reports that while most attendees did not avail of any of the provisions of the CARES Act (more than 90%), they opted for access to funds in the form of coronavirus-related distributions (CRDs), hardships, or loans have decided.
Due to the availability of CARES Act provisions, the company found that the number of 401 (k) hardship withdrawals and borrowings decreased in 2020 as participants took CRDs instead. While CRDs accounted for 68% of the loans and distributions, in 2020 only around 8% of participants took out at least one CRD.
The results are based on the large market full-service universe of T. Rowe Price Retirement Plan Services (401 (k) and 457 plans), consisting of 674 plans and more than 2 million participants in 2020.