The FINANCIAL -- Wells Fargo & Company announced key trends among the 4 million eligible employees for whom the firm provided an employer-sponsored 401(k) plan in 2013.
The FINANCIAL -- Wells Fargo & Company announced key trends among the 4 million eligible employees for whom the firm provided an employer-sponsored 401(k) plan in 2013. In a review of data compiled from 2,036 companies where gender was indicated, about half of all men (49%) and four out of 10 women (43%) are enrolled in their workplace retirement plan. When compared to Wells Fargo’s recommended contribution index, which measures how many people are saving a minimum target of 10% in their 401(k) plan, including employer match, 43% of men contribute at this rate versus 39% of women, according to Wells Fargo.
Employees who contributed to their 401(k) plans saw their average balances rise 19% and 35% over the past two years, largely due to stock market gains.
“In general, all men and women need to take full advantage of their workplace retirement plan and embrace the 401(k) as the primary retirement benefit,” said Joe Ready, director of Wells Fargo Institutional Retirement and Trust. “In our view, if people have access to a 401(k) they should try to save at least 10%. The power of saving regularly, coupled with the compounding effect of time, can create a financial foundation for people that results in much greater retirement security,” he added.
Although the data show fewer women participating in plans, the investments that women choose appear to be slightly more diversified with 70% of women meeting a minimum level of diversification – a minimum of two equities and a fixed fund and less than 20% in employer stock – in their 401(k) account investments versus 67% of men. The difference has been stable for the last two years. One potential driver of this difference in diversification is the use of managed investment options: 74% of women have money in managed investments, versus 71% of men, according to Wells Fargo.
While balances are on the rise, so are 401(k) loans: 20% of participants now have an outstanding loan, up from 19% two years ago – an increase of 5.4%. Twenty-six percent of participants who left their employers in 2013 cashed out their 401(k) accounts, versus leaving their balances in the plan or immediately rolling over to IRAs. Upon cashing out of their workplace plans, employees have 60 days to decide if they will roll their cash into an IRA.
“Loans and cashing out of one’s 401(k) upon leaving an employer are two of the biggest factors leading to the potential for significant erosion of a person’s retirement savings. As account balances climb with the markets performing as they have the last two years, unfortunately loan usage has also continued a slow but steady rise,” said Ready.
Usage of Roth 401(k) plans, when offered by employers, jumped from 8.6% of participants to 10.4% - a gain of 1.9 percentage points, or 22% from two years ago. Millennials are the biggest users of the Roth 401(k), which takes after-tax contributions and allows participants to withdraw funds tax-free in retirement: 15.3% of millennials use Roth 401(k), up 2.4 percentage points from the prior year, according to Wells Fargo.
The number of participants with a balance that is diversified across a variety of asset classes is up 4.2 percentage points over the past 2 years (2.1 percentage points in 2013). The increase in diversification is due to higher adoption rates of managed investment options. The percent of participants who have some money in a managed option has jumped 4.9 percentage points over two years and 2.2 percentage points in 2013. The use of managed investments is highest among new hires and lowest among long-term employees, which could be due to the trend of using target date as a default investment option. The change in recent years to using managed investments (especially target-date funds) is having a real impact on participant diversification.
Total assets in managed investment options are up to 26% from 22% during the course of 2013
Fixed-income investments or cash equivalents now represent 18% of 401(k) assets, down from 26% two years ago
The percent of participants who do not use a managed investment option and have their entire balance in a single investment is down to 10%, from 12% two years ago
“The drop in fixed-income investments or cash equivalents is partly due to stock market increases, as well as participants more actively investing in equities. Whether the increase in managed investment options and overall diversification is due to an intentional selection by participants or a result of automatic enrollment popularity, this is a trend that puts people in a better position to save for retirement,” said Ready.