A Good Score for Retirement and Health Savings

Millennials in particular seem to be increasingly energized about saving and investing for the long-term, according to the Bank of America Merrill Lynch 401(k) Wellness Scorecard. The semi-annual report suggests increased mobile access, 401(k) auto-features, and more personalized advice have made employee benefit plans more valuable and easier to use for the typical participant.

The shifting 401(k) landscape seems to be drawing in younger employees with the most success. The Scorecard shows nearly 40,000 Millennials enrolled in their employer’s 401(k) plan for the first time during the first half of the year—a 55% increase from the same six month period last year. Across all generations, the report found a 37% increase among first-time contributors, further demonstrating the increased interest from younger cohorts of workers looking to take charge of their long-term financial picture. Researchers suggest the growth could mean this age group appreciates the need to save for a future with greater health care costs and a lack of defined benefit pension coverage.

Other key insights from the new Scorecard show very strong growth for health savings account (HSA) usage, which increased 33% during the first six months of 2014. More than 384,000 workers now utilize these tax-advantaged vehicles to prepare for qualified near- and long-term medical expenses. While Baby Boomers and Gen Xers make up the majority of account holders, at 38% and 39%, respectively, Millennials are 23% of the HSA market—suggesting more workers are using HSAs earlier in their careers.

“Seeing younger generations more vigorously engaged with workplace savings vehicles is encouraging,” says David Tyrie, head of retirement and personal wealth solutions for Bank of America Merrill Lynch. “These actions represent significant steps toward achieving long-term financial wellness in an era of rising health care costs, increasing longevity and self-reliance due to fewer pension plans.”

The Scorecard also looks at participant engagement with Bank of America Merrill Lynch’s Benefits OnLine Mobile site. Traffic on the site increased 41% during the first six months of 2014, with approximately 170,500 unique users accessing their benefits via a mobile device, up from 120,500 during the same period last year. This is further demonstration that participants want to receive education and information about their benefit plans on-the-go, the report says.

Another positive finding in the report shows employers continue to seek proactive ways to help their employees achieve their retirement goals and improve their overall financial wellness. Results from the report show that, during the 12-month period ending June 30, 2014, the number of 401(k) plans combining auto-enrollment and auto-escalation grew 19% compared to one year earlier.

Other findings on automatic plan features show nearly all employers (94%) that added auto-enrollment during the first half of this year also added auto-increase provisions, compared to 50% during the same period last year.

Overall, more plan sponsors are adding “voluntary auto-increase” to their plans, the Scorecard shows, with a 63% increase in adoption of this feature during the last 12 months. As the Scorecard explains, voluntary auto-increase must be activated by a participant before taking effect, as opposed to true auto-increase provisions, which are activated when an employee joins a given plan. Employees are responding to this feature, as evidenced by a 27% increase in the number of participants activating auto-increase.

“With intuitive plan design strategies, companies are making access to financial benefit plans and decision-making about enrollment and contribution rates easier, and helping employees achieve better outcomes through personalized education and advice,” explains Steve Ulian, head of institutional business development for Bank of America Merrill Lynch. “By further integrating how employees save for retirement and long-term health care costs, employers can help people see a more complete picture of their financial wellness and make informed choices.”

One feature of the Scorecard breaks down the expected sources of retirement income for each generation with some representation in the U.S. workforce, from Millennials to the Silent Generation (those ages 69 to 89).

Moving from the oldest generation to the youngest, there is a clear trend of decreasing expectations for pensions and Social Security to deliver retirement income. For example, while the Silent Generation expects to get 55% of total retirement income from Social Security, Millennials anticipate getting just 26% of retirement income from the government program.

Interestingly, defined benefit pension plans account for only 22% of expected retirement income for the Silent Generation, falling to 19% for Baby Boomers, and 12% for Generation X and Millennials. Also striking is that Millennials expect to get up to 26% of retirement income from “employment income,” showing they may not picture retirement the same way as older generations. Boomers, for instance, expect to get only 17% of income from employment in retirement, and the Silent Generation expects only 5% of retirement income from this source.

To access the Bank of America Merrill Lynch 401(k) Wellness Scorecard, click here. The report’s 401(k) data is based on Bank of America Merrill Lynch’s proprietary business, which comprises $129 billion in plan assets across more than 2.5 million plan participants.