Data & Research October 27, 2017

Consistency Key to Increasing 401(k) Plan Savings

A longitudinal analysis of 401(k) plan participants drawn from the EBRI/ICI 401(k) database found the average account balance for consistent participants increased at a compound annual average growth rate of 13.9% from 2010 to 2015.
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An annual update of a longitudinal analysis of 401(k) plan participants drawn from the Employee Benefit Research Institute (EBRI)/Investment Company Institute (ICI) 401(k) database continues to show consistency is key in building retirement assets.

The average 401(k) plan account balance for consistent participants rose each year from 2010 through year-end 2015. Overall, the average account balance increased at a compound annual average growth rate of 13.9% from 2010 to 2015, to $143,436 at year-end 2015.

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The median 401(k) plan account balance for consistent participants increased at a compound annual average growth rate of 17.9% over the period, to $66,412 at year-end 2015. The growth in account balances for consistent participants greatly exceeded the growth rate for all participants in the EBRI/ICI 401(k) database.

EBRI notes that because of changing samples of providers, plans, and participants, changes in account balances for the entire database are not a reliable measure of how individual participants have fared. A consistent sample is necessary to examine the growth in account balances experienced by individual 401(k) plan participants over time.

However, at year-end 2015, the average account balance among consistent participants was almost double the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was almost four times the median balance across all participants at year-end 2015.

No doubt one reason for the growth in account balances is 401(k) participants tend to concentrate their accounts in equity securities. The asset allocation of the 7.3 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 26.1 million participants in the entire year-end 2015 EBRI/ICI 401(k) database. On average at year-end 2015, about two-thirds of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non–target-date balanced funds, or company stock.

The analysis found younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants. In addition, younger 401(k) participants or those with smaller year-end 2010 balances experienced higher percent growth in account balances compared with older participants or those with larger year-end 2010 balances.

EBRI notes that three primary factors affect account balances: contributions, withdrawal and loan activity, and investment returns. The percent change in average account balance of participants in their twenties was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 43.1% per year between year-end 2010 and year-end 2015.

The full EBRI Issue Brief is here.

Client Service October 27, 2017

Benefits Need to Be Communicated Year-Round

By making workers aware of health and financial benefits, employers can make their workforce more engaged and productive—and avoid costly expenses.
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Most employers inform their workforce about their health, retirement and financial wellness benefits once a year—at open enrollment, Benz Communications maintains in its report, “The Value of Investing in Benefits Communication.” The problem with that is people encounter personal, health or financial crises at unexpected times outside that narrow window.

Should a worker not be able to address a problem with the resources available from his or her employer, they can easily become more distracted and less productive at work, Benz says. If it is a health-related issue, the employer will have to bear those costs. Or, if it results in workers not being able to retire at the appropriate time, the employer has to grapple with workforce issues and the higher cost of insuring older people.

While employers may not give benefits communication much thought, it is something that advisers can bring to their attention, Benz says. Citing data from Quantum Workplace and Limeade, Benz notes that 38% of employees who believe that their employer cares about their health and well-being are more engaged. Seventeen percent say they are more likely to continue working at their employer in a year’s time, and 28% say they would recommend their employer to a family member or acquaintance.

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Conversely, Benz says, Gallup data indicates that disengaged employees cost U.S. companies $450 billion to $550 billion a year in lost productivity—and in 2015, only 32% of workers said they were engaged with their jobs.

To reach people throughout the year, employers need to develop a website devoted to their benefits program and make the information also accessible via smartphone, tablets and social media, Benz says. Employers also need to develop a year-round calendar for communications: “Tips, reminders and updates sprinkled throughout the year in bite-size chunks to employees and their families,” the report states.

According to the report, electronic delivery should not be the only communications channel. Employers should use postcards, posters, flyers, as well as blogs and text messaging. Then, to see what is resonating among its employee base, employers should examine web traffic and email open and click-through rates.

Benz says that with an effective benefits communications strategy, employers could even migrate their workforces to high-deductible health plans with little pushback—and that they will find their employees’ productivity rises substantially.

In conclusion, the report says, “Employees are the source of all productivity and growth. They deserve communication that helps them better understand their benefits so they can get the most out of your key programs. Ultimately, this will drive better health and financial security for everyone.”

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