According to Bank of America’s latest 401(k) Participant Pulse report, there was some good news to offset the less favorable news amid ongoing economic headwinds.
Notably, the firm’s first quarter, 2023 data shows that fewer participants took loans, but for higher amounts, while hardships increased in number and amount. At the same time, participants started the year with lower balances but higher contributions than last year. On a positive note, Bank of America sees more participants increasing their plan contribution rates than decreasing their rates, across all generations.
More specifically, while participants ended the quarter with lower balances year-over-year ($78,800, down from $86,000 in March 2022), the research reveals that the average contribution rate across plan participants increased to 6.5% (up from 6.4% at the end of 2022), with the average contribution amount for the quarter at $1,880.
The report, which provides a real-time snapshot of 401(k) contribution rate, loan and hardship distribution trends based on Bank of America’s 401(k) recordkeeping clients comprised of more than 3 million participants, also shows that the average contribution amount in March 2023 was up 24% ($820 vs. $660 in March 2022).
Additionally, across all generations, Bank of America found that more participants increased their plan contribution rates (14.5%) than decreased their rates (3.2%), with this trend led by the younger generations, including Gen Z (23% vs. 2.4%) and Millennials (15.7% vs. 3.6%).
Loans and Hardships
Meanwhile, even though participants borrowing from their 401(k) decreased, the research found that loan amounts increased. In fact, the percentage of participants borrowing from their plan declined to 1.9% in the first quarter — from 2.1% in the fourth quarter of 2022; but up from 1.7% in the first quarter of 2022. However, the average loan per participant increased to $8,550 — up 14% from the fourth quarter of 2022, but down 4% from the first quarter of 2022.
Loans in default also dipped, according to the research. During the first quarter, 14.3% of participants had a loan in default, which was down from 15.2% in the fourth quarter of 2022. In total, loans in default totaled $460 million by the end of the quarter. When looking across generations, Gen X and Millennials have the highest percentage of outstanding loans at 22.4% and 13.8%, respectively.
More participants took hardship distributions, with the average amount also increasing. Participants taking a hardship distribution increased to 0.46% (up from 0.4% in the fourth quarter of 2022 and 0.3% in the first quarter of 2022). The overall number of participants taking hardship distributions during the first quarter came in at 14,225, which was up 15% from the fourth quarter of 2022 and 33% from the first quarter of 2022.
The average hardship distribution amount was $5,100, up 8.5% compared to the fourth quarter but down from $6,000 in the first quarter of 2022.
“An increase in 401(k) savings, coupled with only moderate activity in participants accessing savings, such as loans and withdrawals, continues to show that even in the current economy, participants are generally staying the course when it comes to longer term savings,” observes Kevin Crain, Head of Retirement Research & Insights at Bank of America. “This could also indicate improving confidence among participants and their financial well-being,” he adds.
This latest report is based on participant data with positive retirement balances as of March 31, 2023.
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