401(k) Participation Rises Despite Economic Woes: BofA Merrill Lynch

A looming presidential election and fiscal cliff were not enough to dissuade employees from taking positive savings actions in their 401(k)s, according to Bank of America Merrill Lynch’s latest quarterly numbers for its retirement and benefit plan services business.

For the quarter ending Sept. 30, 2012, more than 141,000 employees started or increased their participation in the retirement plans provided through plan sponsors. Those results for the third quarter nearly matched the firm’s second quarter results that saw more than 142,000 who started or increased contributions to their retirement plans.

The latest results mean that almost 490,000 employees have started or increased their retirement savings in Bank of America Merrill Lynch’s plans since the beginning of the year. The firm currently serves 2.5 million plan participants who carry balances in their retirement accounts. The total assets in those client plans is $98.2 billion.

The consistency of the contributions this quarter—even as economic concerns mounted with presidential election and fiscal cliff—points to an a long-term positive behavioral trend in place since 2009. That trend comes as plan sponsors are working with Bank of America Merrill Lynch to keep their employees actively engaged through automatic enrollment, automatic increase and advice features in their plans, said Kevin Crain, head of Institutional Retirement & Benefit Services at Bank of America Merrill Lynch.

Since 2009, the plans have seen a 42% uptick in the use of the auto increase feature, which automatically increases the amount an employee contributes to their retirement plan. The firm has also seen a 43% increase in the number of participants defaulting or auto enrolling in their Advice Access program, a tool that provides personalized savings and investment advice.

“The plan sponsors are doing their job about getting these plans set up structurally, so employees can easily engage initially, stay engaged ongoing and even increase engagement in terms of savings behaviors,” Crain said.

The plan sponsors have also increased their engagement in the plans since 2009, according to Crain, with plan sponsors having increased the use of the automatic increase over the automatic enrollment feature. At the same time, Crain said, more have worked to boost their initial default savings rates from 3% to as much as 6% to start.

Those actions by plan sponsors have led to more positive behaviors from employees when it comes to retirement savings, said Michael Liersch, director of behavioral finance at the firm.

“It really appears that they’re thinking of this in terms of their long-term retirement goals and futures and contextualizing the decisions they’re making around participation deferral rates, this notion that my time horizon is long,” Liersch said. “It is not based on one particular election, and I think that is encouraging.”

Other key facts from Bank of America Merrill Lynch’s quarterly 401(k) research includes:

-       90% of participants who have automatically enrolled are still active in their plans.

-       72% of participants in plans that combine automatic enrollment and automatic increase features are using the pre-set rates and investment elections, while 24% change those rates or investments and 4% have opted out

-       10% of plans are using automatic enrollment, automatic increase and Advice Access plans together, up from 7% one year ago

Going into 2013, Bank of America Merrill Lynch plans to continue to urge plan sponsors to increase their use of automatic enrollment and automatic increase, and thereby continue to grow the engagement of participants in their plans.

“If they don’t have these solutions today, we’re fighting a hand-to-hand battle on this client to client to client about why, and prove in cost studies and other ways why it’s important to do,” Crain said.

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