Pandemic Sparks Surge in 401(k) Interest and Activity

Some employers are getting creative in helping employees manage finances.

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David Rice
01/07/2021

401k pandemic

The pandemic has changed the way organizations view their futures and plan for them, but the same could be said for employees. Over the course of the last year, nothing has felt certain and employees and job seekers alike are looking for stability and ways to develop or tap into a safety net for themselves.

Predictably, this has led to an increased interest in managing, altering or accessing the funds within 401(k) accounts. The CARES Act that was passed in March made it easier for people to access those funds, however, according to Fidelity, the nation’s largest 401(k) provider, few have.

In reality, what many employees want is not access to the funds, but to move them into more secure accounts or repackage the purpose of their savings. According to research from Willis Towers Watson, the retirement savings employees are most interested in include building emergency funds via after-tax contributions such as Roth plans or putting money directly into student loan repayment through their contributions, while still setting aside the employer’s contribution for their retirement.

Other popular features include:

  • Converting PTO to a defined contribution (DC) plan
  • Rewards contributions for things such anniversaries
  • Redefined balance of employee and employer contributions
  • Being able to choose from a benefits menu.

The results of the survey reflect the reality of modern day retirement planning. Fewer and fewer workers rely on a traditional pension, meaning that it’s on them build an adequate plan for retirement income and savings. But employers are well positioned to help them plot their financial wellbeing like never before and many are doing so. Others are not.

COVID Costs and Shifts

Research from the Plan Sponsor Council of America shows that not all employers are as committed to 401(k) benefits as the ones above. Roughly 8% of employers slashed 401(k) contributions during the pandemic and another 1% are considering doing so. That equates to roughly 46,000 employers. More than half of those who cut completely cut off matching payments to workers.

This of course creates a great deal of uncertainty for employees thinking about their future. Many who are unemployed have tapped into their savings, with a CNBC survey last year showing that 14% of Americans had wiped out their savings entirely.

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The costs to their savings, however, is being somewhat made up via the changes in their habits. A survey from Voya Financial showed that 73% of Americans felt that material goods matter less to them in light of their experiences during the era of COVID-19 and 69% are more focused on saving than before.

Saving has become a bit easier, however, as the expenses related to commuting, the need for work attire and the inability to vacation have given people less things to spend their money on in general.

2021 Trends in Retirement Planning

With companies well positioned to help employees, now is the time to create a sense of goodwill with them. This isn’t limited to 401(k) plans, however, but part of a broader approach to employee wellness, according to Charlie Nelson, CEO of Retirement and Employee Benefits for Voya.

“If there are any silver linings that we can take away from this year, it’s that the shifting priorities of individuals are emphasizing the importance of holistic workplace wellness offerings. This includes things like retirement savings, emergency fund support and access to voluntary benefits such as protection for unexpected critical illnesses, accident or hospital stays, particularly in light of the global health crisis,” Nelson said.

“The good news is Voya’s survey found 60% of working individuals have grown a new appreciation for their employer given their experiences with COVID-19. So, for employers, helping individuals maintain a healthy balance when it comes to both their financial and mental well-being is becoming increasingly important.”

READ: How to Be Competitive on Pay and Benefits in International Markets

To help employees establish the sense of security they crave, employers may want to consider some of the following solutions.

  • Pooled Employer Plans – these allow separate employers to work together to form a retirement plan and take advantage of collective purchasing power so that they can receive pricing similar to large plan sponsors. These are a newer type of plan that are starting to take shape with more regularity. Their efficacy remains to be seen but will be looked at closely in the coming years.
  • Annuities - the regulatory landscape for annuities is friendly right now and will likely become more common as an investment for target date funds.
  • Education on Plan Leakage – early withdrawals from retirement accounts are costly for employees and should be reduced whenever possible. This is just one feature in financial wellness training, a benefit many employees are seeking.
  • Automatic Features – beyond auto enrollment, auto escalation is a feature to help employees plan their long term contribution plan so that it increases without them having to do anything. Features such as this are becoming more commonplace and should continue to proliferate to help employees save money more efficiently.

Whatever path your company decides to take, 2021 is a year where any employee can be engaged with through a conversation about financial wellness and security. Take this time to ensure that you’re creating benefit offerings that meet employee needs and you’ll see the rewards come back on the next employee satisfaction survey.

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