In 2020, retirement savers endured high levels of market volatility as the COVID-19 pandemic disrupted the global economy and changed the financial landscape for many U.S. businesses. Positively, our data suggests that the vast majority of savers made very few changes to their retirement savings rates. But there's still a fair amount of work left to be done to help ensure retirement readiness. 401(k) account balances on our platform across all generations are likely lower than what would be required to cover retirement goals.
It’s important to note that some of these savers have additional retirement assets saved elsewhere. To get a holistic view of progress, savers should review their balances across the various funding sources they plan to leverage in retirement.*
*These average balances represent only those assets saved on the Ascensus platform in a single 401(k) account. External assets saved by these individuals in separate savings accounts, IRAs, etc. are excluded. Participants with undisclosed or $0 compensation reported for the 2020 year were also excluded from this analysis.
Additional retirement assets accumulate in IRAs
At Ascensus, we administer more than 1.5 million traditional and Roth Individual Retirement Arrangements (IRAs), which gives us insight into how the modern saver is using these vehicles to supplement retirement funding. Savers have more than $34.4 billion in Roth and traditional IRA assets on our platform.
$3.5
billion in Roth IRA assets
$14,419
average Roth IRA balance
$30.9
billion in traditional IRA assets
$30,830
average traditional IRA balance
Tracking progress to personal retirement goals
Our Retirement Outlook tool provides savers with a snapshot of what their retirement might look like based on their personal goals. Users enter their current savings rates, desired age of retirement, and their monthly retirement income needs. The tool then calculates whether they're on track to meet their goals or whether they're projected to have a shortfall.
Based on Retirement Outlook tool data, our oldest and youngest savers are most likely to be "on track" to meet their goals. 41% of savers 65 and older and 33% of savers under 25 are on track.
A clear "Outlook" leads to increased saving
Awareness of a savings shortfall seems to be the first step in the right direction. 38% of all users of the Retirement Outlook tool were motivated to make a change to their strategy after reviewing their results.
38%
of employees using the Outlook tool changed their savings strategy
10%
average savings rate after making the change—a 13% increase over their original average rate
Removing roadblocks boosts participation
Automatic enrollment and automatic increase features make it as effortless as possible for employees to start contributing to their 401(k). Plans with automatic features have an average participation rate 13% higher than those without. Employer matching contributions offer additional motivation and an even more notable boost in plan participation when coupled with auto features.
69%
average participation rate for plans without auto-enroll
82%
average participation rate for plans with auto-enroll
82%
average participation rate for plans with auto-enroll and auto-increase
83%
average participation rate for plans with auto-enroll and auto-increase that fund a match
Retirement plan engagement by industry
Employers across a diverse range of industries have stepped up to the plate, offering a retirement plan to help their employees achieve a more financially secure future. But how are employees across these industries engaging with their 401(k) plan and what are the average plan participation rates?
Across our platform, retirement plan participation is highest among employees in the finance and insurance industries. Employees in these industries are likely knowledgeable on financial wellness and tend to have higher average compensation relative to those in other industries.
The industries that have the lowest average plan participation as of the end of 2020 include those that were strongly impacted by business disruptions and closures due to the COVID-19 pandemic (for example, food and accommodation services). Our State of Savings report includes additional insights on how retirement plan engagement and employers' plan contributions were impacted by the pandemic. It's important for financial advisors to consult with clients that might fall into lower-engagement industries to discuss how incorporating auto features or other plan design elements might drive better outcomes.
Which industries are saving the most for retirement?
Finance and insurance professionals have the highest average account balance at $95,733. Healthcare and social assistance employees rank second highest, with average savings of $83,059. Again, we see some of the industries that were likely impacted by COVID-related business interruptions ranked lowest here, with employees in the food and accommodation services field with an average of just over $23,000 saved for retirement. Again, these balances reflect assets saved in 401(k) accounts on the Ascensus platform only. It's possible that they represent just one piece of the retirement planning puzzle.
Flexible payment options help employers meet business needs
71%
of employers elect to be invoiced for recordkeeping fees*
29%
of employers pay their recordkeeping fees using plan assets*
Under a flexible fee-based structure, employers can pay their plan's recordkeeping fees "out of pocket" or with plan assets. Employers who pay out of pocket, writing a check for recordkeeping services, under a fee-based structure receive the benefit of a business tax deduction for that expense. And, by opting to pay out of pocket, employers can also enable assets to grow and help boost the plan’s market value over time. Consider the following example.
For a full-service plan with:
25
participants
$75,000
in annual contributions
5%
market growth
$4,625
annual recordkeeping fee
By paying out of pocket over the course of 5 years, the plan experienced more than $26,000 in a market value differential because plan assets remained in the plan and benefited from compounding. During challenging economic times, using plan assets can help free up much-needed cash to cover everyday business expenses.
*Applicable to fee-based plans on the Ascensus platform.
This illustration is provided solely as an example based on the assumptions and plan information highlighted above. This is an estimate only and is not a guarantee of any particular results. Actual results may differ. This illustration is not intended to be investment advice or a recommendation to purchase, sell, or hold any investment. Ascensus assumes no liability for use of this illustration by any third party.
This illustration is provided solely as an example based on the assumptions and plan information highlighted above. This is an estimate only and is not a guarantee of any particular results. Actual results may differ. This illustration is not intended to be investment advice or a recommendation to purchase, sell, or hold any investment. Ascensus assumes no liability for use of this illustration by any third party.
Advisors and employers continue to focus on value
Employers strive to drive plan value, and savers want to invest their retirement savings affordably. Investment providers have responded to this need with an influx of low-cost options—and our data suggests that more advisors are guiding their clients toward these lower-cost funds because they can help deliver better value for the plan.
*Service revenue is defined as sub-TA plus 12b-1 fees for purposes of this analysis.
Inside Retirement Plans
Check out average savings levels by age group and learn how plan features can help drive participation.
For more information on these insights and our retirement services, contact our retirement specialists.