Millennials take lead in 401(k) contributions
Digital tools expand popularity, ease of adding to plans
They may be the farthest from retirement, but a higher percentage of Millennials are contributing to their 401(k) retirement savings plans than Gen Xers or Baby Boomers, a new report by Bank of America Merrill Lynch says.
About 82% of Millennials are contributing to their 401(k) plans, compared to 77% of Gen X and 75% of Baby Boomers, BofA’s Plan Wellness Scorecard says.
Even though Millennials are in a stage of life where they will be worried about plenty of other big expenses — from buying homes or cars to starting a family — experts say there are good reasons to explain why they are thinking ahead to retirement.
One of the most obvious is they are more digitally savvy, so they find it easier to sign up online for the plans, said Sylvie Feist, director of financial guidance services at Bank of America Merrill Lynch. For another, they know not to turn down an employee benefit.
“Millennials are very interested in saving and very interested in the education that we are delivering and what their employer is offering to them as benefits,” Feist said.
The annual Plan Wellness Scorecard shows trends in 401(k) activity. Data comes from trends among the 401(k) plans that are managed by Bank of America Merrill Lynch.
The growth in Millennial activity with their 401(k) comes as employees as a whole have taken a more active role preparing for their retirement.
Overall participation in 401(k) plans increased slightly over last year, the report found. Employee account balances, contributions and rate increases all saw an average of about 20% growth compared to 2015, a reflection of the rising stock market.
Another key finding was that employers are simplifying retirement plan design with features such as “auto-enrollment” and “auto-increase” that boost employee saving rates.
Grant Sabatier, founder of Millennial Money, a personal finance blog, says Bank of America’s findings are consistent with what he knows of Millennials.
Auto-enrollment is when an employer automatically signs up employees in the 401(k) program, including paycheck deductions that go directly into their retirement account.
Auto-increase refers to a system that automatically increases the amount of money going into retirement accounts when a worker receives a raise or bonus.
Plans using these features rose by 153% in 2016.
BofA says 97% of employees who are automatically enrolled stick with their plan. About half of all plans currently have auto-enrollment.
Digital tools also are expanding the popularity and ease of adding to 401(k) plans, a boon to Millennials.
Website and mobile access to benefits is increasing.
“(Millennials) are doing what the generations before had not done,” Feist said. “Maybe it’s because of the advent of digital tools being so readily available and accessible to this generation. They are exposed to a lot more content.”