Despite the financial challenges of COVID-19, employees mostly have stayed the course and continued socking away money for retirement, according to a new report.
Last year, nearly 60% of employees participated in their workplace retirement plan—consistent with pre-pandemic participation rates in 2019, according to Bank of America, which dove into insights from the more than 3 million participants in the 401(k) plans they administer. The average 401(k) account balance grew to $81,000 in 2020 from $74,000 in 2019.
“Over the last year, employees across various industries continued to make progress toward their financial goals in the face of unprecedented challenges,” says Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America.
The report also found that participation in health savings accounts is holding steady. Average balances in HSAs increased 17% in 2020, with employee contributions jumping 10%. Bank of America HSA participants have an average balance of about $3,400, 35% of HSA balances were saved for future use and 38% of assets held in Bank of America HSAs are invested in the markets for potential future growth.
Related: What to know about the 2022 HSA contribution limits
Still, while contributions to retirement accounts remained steady overall, the financial challenges created by the pandemic did drive an increase in retirement account withdrawals under the CARES Act for employees with an immediate financial need, the report found. But it wasn’t a major rush of money out of accounts. Ten percent of 401(k) plan participants took a hardship distribution made possible by the CARES Act, at an average amount of less than $18,000 per participant. CARES Act distributions outpaced standard hardship distributions 10-to-1, and just 17% of participants took a loan against their retirement plan assets, consistent with 2019 rates.
One disappointing finding of the Bank of America report: Women trail men when it comes to accumulating adequate retirement savings. The survey found that only 55% of women participate in 401(k) plans compared with 61% of men. Men also outpace women in average retirement plan balances ($98,000 for men vs. $62,000 for women)—key statistics for employers to monitor as they help female workers make strides in their savings.
The report finds that employers can play a powerful role in encouraging positive retirement savings behaviors through plan design and by incorporating automatic features into their 401(k) plan. Plans with automatic enrollment see higher participation rates, and 51% of auto-enroll plans also auto-increase their participants, which can have dramatic effects on employees’ retirement accounts.
Also see: Want to spur HSA use? Borrow lessons from retirement planning
“Women have been driving change in the workplace and the home and, as they plan for retirement, they have the same retirement challenges as their male counterparts. They share similar worries and fears, such as not saving enough and outliving assets,” the report says. “However, they are more likely to face additional challenges. In general, women tend to live longer, are more likely to be caregivers and often leave the workforce to care for children or an elderly family member. These additional challenges are an important factor in designing financial wellness solutions for women as they continue to lag their male counterparts across a wide range of factors.”