With equity and bond markets down in 2022, most workplace retirement plan savers saw double-digit declines in their portfolios. But according to new data from the Vanguard Group and Bank of America, most participants stayed the course with their retirement savings.
In a preview of data drawn from 5 million defined contribution retirement plan participants, Vanguard reported a drop in 401(k) balances of 20% in 2022, but it also found that retirement-plan behaviors remained largely the same as in past years. The Valley Forge, Pennsylvania-based firm reported that 50% of participants made no changes to their payroll deferral percentage, 15% increased deferrals and 9% decreased their rate—all numbers in line with 2021, 2020 and 2019. Furthermore, only 6% of nonadvised participants initiated a trade in their accounts in 2022, compared with 8% during 2021.
“Given the uncertainty in the economy, it is remarkable that 94% of participants did not make an exchange throughout the entire year,” the Vanguard report stated.
Vanguard credited workers’ resilience, employers’ increased adoption of automatic enrollment over the last two decades and the prevalence for participants’ allocations to target-date funds, which are increasingly used as employers’ qualified default investment alternative. In data provided to PLANADVISER, Vanguard showed that participant use of “pure,” or single TDFs, rose to 59% last year, as compared to 56% in 2021.
“The increase is due to the trend in pure TDF investors,” a spokesperson said of the data. “Each year, this increases about two percentage points, primarily due to the increased adoption of automatic plan features such as automatic enrollment and TDFs as most plan QDIAs.”
Vanguard’s entire research report, How America Saves 2023, will be published in June.
Bank of America, meanwhile, found a slight decline in the average 401(k) participant contribution rate in 2022, falling from 6.6% at the end of 2021 to 6.4% at the end of 2022, the Charlotte, North Carolina-based firm announced in its 401(k) participant pulse report released Wednesday. That data shows consumers “may have been a bit more focused on short-term financial needs last year,” the report stated.
The bank, which publicizes its retirement saving trends in a quarterly report, reported on the positive side that loan and hardship withdrawals declined quarter-to-quarter at the end of 2022. The bank said that 12% fewer participants took out loans from their retirement plans in Q4, as compared to Q3, and 18% fewer participants took hardship withdrawals. In addition, the average hardship amount also declined in Q4 from Q3 by 8%.
“Long-term retirement planning is a critical metric when considering an individual’s financial wellbeing, as well as the economy as a whole,” Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America, said in the report.