Retirement and healthcare savings account balances have grown since last year for the 4 million or so employees with 401(k) accounts with Bank of America clients, signaling an improvement in their collective financial wellbeing, according to the bank.
"We were actually quite pleased with some of the results that we saw in the third quarter," says Lisa Margeson, a managing director in BofA's retirement research and insights group in Boston. "Those positive trends: I read those as signaling some optimistic signs for the future and that participants were feeling they were in a good place."
The average 401(k) account balance for the group was $102,660 in September, up $22,635 from one year earlier, while the average health savings account balance was $5,130, up $650, BofA reports. Much of the retirement savings increase was probably due to the overall stock market performance, Margeson says.
But not all of the indicators are rosy. The percentage of the 401(k) participants taking hardship distributions in the third quarter was up slightly from one year earlier—0.72% compared to 0.59%--and the average hardship distribution rose to $5,650 from $5,070.
In another negative indicator, 59% of 400,000 participants polled for a financial wellness assessment reported that they lived paycheck to paycheck. And a financial wellness gender gap persists, with 46% of men reporting they have money left over at the end of the month, compared to 35% of the women.
On the positive side: As measured by percentage of pay, participants contributed an average of 6.6% to their 401(k) plans, up from 6.5% one year earlier, according to BofA. A large majority of the participants—88%--didn't change their contribution rate.
The youngest participants increased their 401(k) contribution rates most frequently. Gen Z —defined as those born after 2000—had the largest percentage of participants who increased their contribution rate, at 19.7%. Millennials—born from 1981 to 2000—were second, with 10.6%.
"It's nice to see that younger generation increasing their contribution; that was a pleasant surprise," Margeson says, and a sign that younger employees were setting up good financial habits. BofA encourages its clients' 401(k) participants to contribute at least as much as their employer will match and, whenever an employee receives a raise, to increase their contribution percentage, she says.
Another positive indicator of financial wellness: The percentage of 401(k) participants that borrowed from their retirement savings in the third quarter was lower than in the second quarter, 2.5% compared to 2.7%, although the same as one year earlier. Also, fewer participants who borrowed from their savings were late on repayments of those loans: 11.4% compared to 13% one year earlier. The percentage of those "defaults" versus the overall number of 401(k) loans outstanding has been dropping each quarter for a year, Margeson says.
"That's a real positive trend that we continue to watch and are really pleased that it's going in the right direction. It signals that people are getting more control of their finances," she says.
The growing health savings account balances is hopefully a sign that employees are developing a better understanding of the considerable cost of health care in retirement, which has generally been underestimated, Margeson says.
For health savings accounts, BofA recommends that participants contribute more to the accounts than they spend from them. "Invest your money in a health savings account and then let it grow. If you can afford to pay for your current expenses without tapping that, do so," Margeson says. "Save your HSA funds for when you truly will need them in retirement."
In the third quarter, 75% of health care savings contributions was spent on health care and 25% was saved, compared to a 76% to 24% split one year earlier. Generation X employees—those born from 1965 to 1980—contributed the most on average, while Millennials saved the most.
BofA also recommends that participants invest their health care savings contributions for growth, when their accounts allow that option for balances above a certain threshold. Only 14% account holders invested for growth in the third quarter, up from 13% one year earlier.
"We'd really like to see that higher," Margeson says. The BofA workplace benefits group tries to emphasize in its education efforts the triple tax advantages of investing for growth in a health savings account, with no taxes on contributions, investment gains in the account or withdrawals from the account for qualified expenses, she says.
"That's a pretty good deal," she says. "If you can save that for when you need it in retirement, that's the narrative of the education we tell."
