One such point of information is that according to a new Schwab study reported here, 73% of companies surveyed are now making matching contributions on behalf of their 401(k) participants. That’s slightly more than the previous peak in 2008, which shows the wave of match-cutting driven by the recession has finally subsided. The stock market also returned to pre-crash levels at some point this year, depending on exactly how you count. So by these measures the world of 401(k) has finally reclaimed all its lost ground and is moving forward again.
A pessimist might point out, with some justification, that reduced matches and a net appreciation of zero over this time represent four lost years and hardly count as good news. Looking at the long term, though, it’s getting easier to see the last few years as a historical variation that’s much like any other, if larger in scale and duration. That’s certainly how an economist would view the matter – which seems rather more optimistic than dismal.
To shift from macro to micro, how do companies and individuals feel about 401(k) today? Considering that many firms have a lot of cash on hand, restoring the match may seem like a fairly minimal effort to restore the status quo. But some other statistics from the same Schwab study indicate that plan sponsors are bullish on 401(k), doubling down on their plans with significant improvements.
Automatic enrollment is one key enhancement. 42% of plan sponsors now enroll employees automatically, up from just 5% in 2005. Among larger companies (with 2,500 employees or more) 58% do so. And fully 40% of employers combine automatic enrollment with automatic savings rate escalation. According to Schwab, the approach works: 92% of employees who were auto-enrolled in 2011 remained enrolled, and 82% of those whose contribution rates increased stuck with them.
To us the most important gain is in advice: 83% of employers now offer some kind of advice, compared to just 42% in 2005. We’ve always believed that advice is the single most effective way to improve 401(k) outcomes. And others are seeing the light: a Schwab spokesman noted that according to an earlier survey, participants who get advice “save twice as much, were better diversified, and stick to their long-term plans better than those who don’t.”
We’re tempted to note that simply having a long-term plan for saving and investing is a huge improvement for many retirement investors. Staying on track with it is a bonus – and for the 92% of advice participants who stayed the course through the 2008 downturn and 2009 rebound, a very valuable one.
A More Active Approach
Schwab’s findings are strongly confirmed by another recent study from BofA/Merrill Lynch: a 7% increase in auto-enrollment, 16% increase in auto-escalation, and 8% increase in advice, all over the past 12 months. Calling their report a “401(k) Wellness Scorecard,” the firm puts an emphasis on taking a more active approach to managing retirement plans, both for participants and their employers.
BofA/Merrill Lynch reports that more than half of participants who enroll for advice take the next step by providing more detailed financial information, and indicates that they’re probably on their way to better outcomes as well. On the plan sponsor side the firm notes that measuring “retirement wellness” in terms of outcomes helps sponsors track participant success, and having an increasingly robust set of tools helps them improve it. We could not agree more – although we would add managed accounts at the top of the list of tools.
Taken together, these numbers add up to the best kind of news for plan participants: that aggressive, outcomes-focused innovation is becoming business-as-usual among plan sponsors and those who serve them.