Newly released data from year-end 2022 shows that the volume and dollar amount of 401(k) loans and hardship withdrawals decreased, but there were some nuances to the findings.
In a new quarterly report that draws on data from more than 3 million 401(k) plan participants, Bank of America’s 401(k) Participant Pulse reveals that fewer participants took hardship withdrawals for immediate financial needs.
Participants taking a hardship distribution declined in the fourth quarter of 2022, with the average at 0.4% (down from 0.5% in the third quarter) and the number of participants totaling 12,350 (down 18% compared to the third quarter). In addition, the average hardship amount also declined in the fourth quarter from the third by 8%.
What’s more, the fourth quarter data shows that 60,789 participants borrowed from their workplace plan, which was a decline of 12% from the third quarter. That said, loan defaults rose slightly to 15.9%, up from 15.7% in the third quarter and totaling more than $450 million. Meanwhile, the average loan amount in the fourth quarter was $7,500 — the lowest average for all four quarters in 2022, the report notes.
Perhaps not surprisingly, 30- and 40-year-olds drove borrowing for the year, the research found. More than half of loans taken in 2022 were participants ages 30-49. Gen X (age 43-58) had more participants (3.1%) with loans in default at year end than any other generation.
Additional findings show that contribution rates were down slightly in 2022. According to Bank of America’s data, the average plan participant contribution rate dropped slightly from 6.6% at the end of 2021 to 6.4% at the end of 2022, suggesting consumers may have been a bit more focused on short-term financial needs last year.
And compared to their older counterpart, Millennials apparently led the way in savings rates. Almost half of Millennials (47%) contributed 7% or more to their plan — more than any other generation. Meanwhile, Baby Boomers had the highest percentage of participants (43%) contributing 3% or less, although 24% were saving at 6%.
Bank of America’s inaugural report analyzes activity across 401(k) loans, hardship distributions and overall contribution rates, and aims to help gauge the extent to which short-term economic trends may be impacting consumers’ long-term financial planning.
“We are deeply committed to understanding how current financial realities are affecting consumers’ long-term financial health and planning,” notes Lorna Sabbia, Head of Retirement and Personal Wealth Solutions at Bank of America. “Long-term retirement planning is a critical metric when considering an individuals’ financial wellbeing, as well as the economy as a whole.”
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