Bank of America Merrill Lynch released its quarterly 401(k) Wellness Scorecard, a report that reveals trends among 401(k) plan sponsor clients. The report also examines the saving and investing behaviors, both positive and negative, of more than 2.5 million employees using these plans.
A key insight of the report, according to Michael Liersch, director of behavioral finance at Bank of America, is that in the past, a primary notion was prescribing solutions and telling participants what they should be doing. “But now what we’ve been doing is enhancing the plan architecture through auto-increase and auto-enrollment,” Liersch told PLANADVISER.
Bank of America found that giving participants the tools to become active investors—access to financial advice, online education, video-based content, interactive guides, articles, different approaches to investing—yielded positive results over time. “It really moved the needle in terms of participation,” Liersch said.
Access to advice is an engine that provides participants with financial advice or a picture of how they should invest in a well diversified way to get them to where they want to be, Liersch said, “so they are not just participating, but investing correctly and actually using the funds available to them properly. A lot of people are actively seeking relevant information to get them where they want to go. If we give them the tools, it can make quite a difference in terms of participation numbers that will keep people invested and enhance the retirement security of the population.”
Since 2009, Bank of America has seen a 42% increase in the number of plans using auto-increase. More than 150 of the 401(k) plans the bank recordkeeps for midsize to large companies now combine auto-enroll with auto-increase.
Through the first nine months of 2012, more than 90% of employees automatically enrolled in their 401(k) plans still actively contributed. Last quarter, during the lead-up to the presidential election, 141,000 employees either started to contribute or actually increased plan contributions.
Liersch said he was surprised by the increase, which occurred even against a landscape of uncertainty and economic volatility of the last couple of years. “We still see participant behavior demonstrating that people want to contribute to their plans, and are doing so despite all the uncertainty,” Liersch said. Calling this behavior counterintuitive and exciting, he said the tools and resources can help them get where they want to go. “And they see that the outcomes are positive,” he noted.
Participants using advice also demonstrate higher financial wellness, the report found. Participants enrolled in the program showed an increased tendency toward financial well-being, defined as savings and investing behavior that are likely to lead to a successful retirement. At-risk behaviors include lower contribution rates.
Employers and the 401(k) industry can achieve healthier plans through feature and service enhancements that drive greater employee engagement and tangibly demonstrate improvements in helping employees achieve more successful outcomes, the report said.
“When we think of plan architecture and how that’s been positively impacting participant behavior, I want to give a lot of credit to plan sponsors,” Liersch said. “It’s been a collaborative effort between us and them to find out what kind of plan architecture will uniquely serve a specific set of participants.”