Dive Brief:
- Benefits professionals could glean some good news from Vanguard’s recent report on 401(k) behaviors by generation: Overall, participation in retirement-minded saving increased from 2006 to 2021.
- The biggest jump in enrollment occurred for Gen Zers, who increased their participation from 30% to 62% between 2006 and 2021. The second-biggest jump in participation from 2006 to 2021 was for millennials, who increased their participation rate from about 57% to 83%.
- Among other changes, Vanguard noted a “dramatic shift” in the rising adoption of automatic enrollment. Consider: in 2006, only 11% of plans offered automatic enrollment, whereas half of plans were automatic enrollment by the end of 2021.
Dive Insight:
While benefits professionals and HR practitioners may think increasing enrollment is the main challenge — potentially a reason for less voluntary enrollment plans and more automatic enrollment plans — saving for retirement is now at odds with inflation-era living.
As early as October 2022, Allianz Life reported that current economic headwinds were having a detrimental effect on this area of microfinance: The insurance company’s data suggested that 54% of Americans have stopped or reduced contributions to their retirement savings.
Because of trends such as this one, HR experts suggest that employers become (more) mindful of near-term cash availability and how their company’s retirement plans are funded. Likewise, employers can consider other means of outsourcing retirement management demands, from data analysis to compliance measures.
As of 2021, another generational gap persists: median retirement account balances. In 2021, Gen Zers had about $3,000 saved for retirement, with millennials having $25,000 saved. Gen Xers, meanwhile, had $81,000 saved, leading to an even bigger generational gap, and baby boomers had $139,000.
A benefits professional recently told HR Dive that lack of capital and increased demand for it — for medical bills, car and home repairs and other expenses — has caused workers to “dip into savings that otherwise they might have dedicated for some different purposes,” including their retirement.
At the very least, because of this financial squeeze, employers can leverage retirement plan offerings as a tool for retention and attraction. When competitors are pausing 401(k) contributions due to the economy and potential retirees have maybe a year’s salary for retirement, offering a benefit like retirement matching can set a company apart.
