Participants in Bank of America Merrill Lynch-administered 401(k) plans have reached unprecedented levels of financial wellness, aided by increased use of automatic enrollment and auto escalation.
Employees that have not adopted a specialized online advice program had a 7.2 financial wellness score — out of a possible 10 — while participants using the advice registered an 8.5 at the end of the second quarter, according to the company's 401(k) Wellness Scorecard. It is the first time in the five-year history of the report that both numbers were greater than seven, said Kevin Crain, managing director and senior relationship executive. “I'm extremely comforted to see both populations above seven,” he added.
A large driver in the increase in financial wellness is companies not only implementing auto enrollment, but implementing it at a higher employee contribution rate. In the first six months of 2013, 76% of plans that added automatic enrollment set a default contribution rate above the 3% average.
“That is a dramatic change in difference” from four or five years ago when the majority of plans set a default rate at 3% or lower, Mr. Crain said.
The number of overall auto-enrollment plans has increased 16% for the year ended June 30, while the number of auto-enrolled participants is up 29%. And automatic increase features are on the rise as well. In the same period, auto-escalation plans are up 26% while participants are up 19%.
“Plans using auto enrollment before are now adding auto increase because auto enrollment worked and people stayed with it,” Mr. Crain said.
In addition, many plans that originally adopted auto enrollment for new employees are now going back and automatically enrolling all eligible employees, Mr. Crain said.
For participants, the ratio of positive actions — starting or increasing contributions — continues to outpace negative actions — participants reducing or stopping contributions — by about 3-to-1. Mr. Crain said the ratio has “somewhat normalized” to a 75%/25% split, which is “very healthy.”