While market volatility certainly affected retirement savings in 2020, new research shows that participants saved more, account balances grew and plan sponsors remained steadfast.
“Reference Point,” T. Rowe Price’s annual benchmarking report, reveals that the overall average pretax 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 market volatility early in the year, the overall average account balance increased by 13% from $100,600 to $113,900 by the end of 2020, when the market rebounded. Additionally, even though the pandemic created economic uncertainty, more than 90% of participants stayed the course by not making a withdrawal from their retirement account.
Based on the firm’s full-service recordkeeping client data, the report features year-over-year data and analysis on participant behavior and plan design. New for this year are findings seen through the lens of the global pandemic.
“While the financial, physical, and emotional strains caused by the pandemic had, and will continue to have, repercussions on plan design and retirement savings outcomes, it was encouraging to see that through it all, plan sponsors and participants remained committed to retirement savings,” notes Kevin Collins, head of Retirement Plan Services at T. Rowe Price.
Plan Design Changes
Additional findings show that the number of plans adding auto-enrollment slowed in 2020, but there was still an increase in the share of plans using it, rising from 61.8% in 2019 to 62.2% in 2020, T. Rowe Price further reports. The same was true for auto-increases, which grew from 79.8% in 2019 to 81.2% in 2020. “The increased usage of auto-enrollment and auto-increase, along with the increase in default deferral rates, may reflect a deeper understanding on the part of the plan sponsors regarding how important it is to provide their employees with ample opportunity to save, despite—or perhaps because of—the pandemic,” the study notes.
In addition, default deferral rates increased from 4.4% to 4.5% over the last year.
Roth 401(k)s also continued to gain traction in the marketplace. Since 2016, plans offering Roth contribution options have increased from 60% to 80% in 2020, according to the firm’s data. Furthermore, nearly 10% of eligible participants took advantage of this benefit in 2020, up from 8.5% the previous year.
And while most plans maintained their plan design throughout the pandemic, the study notes that some plans needed to make changes.
During the peak of the market volatility in 2020, 10% of plans made changes to their plan design. From 2019 to 2020, the percentage of plans offering a match declined, from 82% to 77%, as some plans suspended their company matching contributions in 2020.
However, of the plans that made changes, nearly half (46%) reinstated part or all of their original plan design, including matches, within the first month of the new year, suggesting that the changes were intended to be temporary and in response to economic uncertainty, the study notes.
For those that reduced or suspended their matched contributions, the largest impact was on plans with between 1,000 and 5,000 participants, as well as plans with assets between $150 million and $500 million.
Not surprisingly, two industries affected significantly by the pandemic were retail trade and leisure and hospitality, both of which experienced a larger-than-average reduction in matched contributions in 2020, decreasing by 11% and 17%, respectively.
T. Rowe Price also reports that while most participants did not leverage any of the CARES Act provisions (more than 90%), those who did chose to access funds in the form of Coronavirus Related Distributions (CRDs), hardships or loans.
Due to the availability of CARES Act provisions, the firm found that the number of 401(k) hardship withdrawals and loans taken declined in 2020, as participants took CRDs instead. While CRDs accounted for 68% of loans and distributions, only about 8% of participants took at least one CRD in 2020.
The findings 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 throughout 2020.