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401(k) contribution rates rising faster than ever

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While it may be that too few Americans are saving enough, nearly one-third of 401(k) participants increased their contribution deferrals last year, a higher rate than ever seen before, according to a Cogent Reports study. 

Just as encouraging: the 26 percent of participants who did not do likewise but said they intend to in the next year. 

Last year’s rate of deferral increase far surpassed expectations, as only 21 percent of participants indicated their intention to increase deferrals in 2013. 

Gen X and Y participants are pacing the trend. 

“The reason this increase is coming primarily from the younger generation may be because these cohorts are starting to understand the value of investing in their defined contribution plans,” explained Linda York, VP of syndicated research at Market Strategies, the Boston-based research consultancy that publishes Cogent Reports. 

Increasing contributions from younger participants bodes well for plan providers that stay the course in an era where many are getting out of the record-keeping business, said York. 

Providers that maintain a presence in the record-keeping side of the business “may be sitting on a potential gold mine with their Gen X and Gen Y participants,” she said. 

Beyond plan design and participant savings trends, the report gauges participant satisfaction with their plan providers. 

Overall, participant satisfaction with their plans, and their providers, has improved substantially over the past year, creating a climate of “goodwill” among participants not seen since the financial crisis, according to the report. 

Among the top 10 largest plan providers, seven experienced increases in overall satisfaction, and none experienced a decrease. 

American Funds had a 70 percent satisfaction rate, up from the previous two years and the highest level of the providers researched by the report. 

BofA Merrill Lynch, Wells Fargo, Vanguard and T. Rowe Price rounded out the top five, with satisfaction rates between 66 and 68 percent. 

JP Morgan Retirement Plan Services saw its level of satisfaction rise to 58 percent, and ranked 10th on the list. 

Spikes in contribution rates and overall feelings of satisfaction are likely related to improved account balances, said York. 

Nevertheless, younger savers’ appetite for automatically increased deferrals, coupled with their newfound feelings of goodwill, should make for opportunities for providers.

“The lift in satisfaction, if maintained, could lead to lucrative cross-sell business in the future,” said York.