Screaming headlines of dubious reports purporting that 401(k) plan participants raiding their retirement savings are au courant these days.
But a Bank of America Merrill Lynch study released Thursday suggests an opposite trend, and the fact that Merrill’s retirement plan management encompasses 2.5 million total plan participants and plan assets of $98.1 billion gives weight to the study’s quite upbeat conclusion: that 2012 was a model year and that Americans are fortifying their retirement readiness.
“Of all participants in their retirement plans taking an action, we like to measure how many are taking positive actions and how many negative actions,” said Kevin Crain (left), head of institutional retirement and benefit services for Bank of America Merrill Lynch, in an interview with AdvisorOne.
The firm’s just-released annual and fourth quarter 2012 study shows that 81% of plan participants took positive actions such as initiating or increasing 401(k) plan contributions, while just 19% took negative actions such as taking loans or withdrawals from their plans.
Crain called that the “strongest” outcome he has seen since Merrill has been conducting its plan participant studies, beginning with the first quarter of 2009.
The Merrill executive cited two key reasons for the success Merrill plan participants enjoyed in the previous year.
One factor has been plan design features that encourage positive behavior.
“There’s a lot of effort now by companies, plan sponsors working with us as a provider, to make efforts to make it easier to get employees to stay engaged,” Crain says.
“They’re not just use auto enroll, they’re initially deferring at a higher rate than they used to,” he adds, noting that salary deferral rates of 4%, 5% and 6% are becoming a new normal in comparison to the 1%, 2% and 3% rates that once prevailed.
“What’s good about that is most companies match contributions, so you’re maximizing the employee savings,” Crain says.