Participants Reassess Their Retirement Savings and Readiness With the New Year

This month as calls from retirement plan participants and website visits have increased, recordkeepers are noting changes, some of which are related to job losses, employment trends and the economic dislocations as a result of the ongoing COVID-19 pandemic.  

Consistent with previous years, in January, retirement plan participants are reassessing their finances by reviewing the entire retirement readiness picture, says Rachel Weker, senior retirement manager at T. Rowe Price.

“We definitely see that pattern of behavior year-over-year,” she says. “At the beginning of the year, as people are reassessing their financial situations, we see volumes increase the day after [the] Martin Luther King Jr. [holiday]. Historically there is a more significant jump than you typically see coming off of the weekend.”

T. Rowe Price figures for call volume increases show that calls this year spiked again in January and were consistent with prior years, Weker adds.

“When we compare ‘22 volumes to ‘21 and ‘20 we don’t see any volume discrepancies this year relative to the others,” she says. “The volumes are consistent, but we are seeing that increase.”

The recordkeeper states that “it’s usual to see increased activity the Tuesday after MLK weekend (up 60% compared to 20% increase after typical weekend).”

Many participants’ top concerns did carry into 2022 from previous years. For example, interest in locating tax forms and information, consumption of content on investing and use of T. Rowe Price’s paycheck impact calculator continued.

The firm’s January figures show that its paycheck impact calculator accounted for 50% of all tool usage in January to date compared to the typical usage of 30%. Additionally, overall tool and calculator usage overall is up relative to last January.

Voya also experienced a spike in participant calls and website activity this month, says Amy Vaillancourt, senior vice president for Workplace Solutions and Experience at Voya.

“Historically January is a time of very high engagement,” Vaillancourt says. “We saw very high engagement from our customers this week already, and we attribute that to things like checking their statements, getting ready to plan for taxes and questions on saving and financial wellness.”

Voya did not provide figures for January call center volumes or website visits.

Changing Contribution Rates

T. Rowe Price experienced an uptick in participants changing contribution rates and a slight increase in retirement savings withdrawals.

For example, there was a 1 percentage point increase this year for making changes to contribution rates compared to 2021—from 3% to 4% of visits taking this action—among T. Rower Price plan sponsor participants. The increase in volume of withdrawals relative to last year was .7% in 2022 compared to 5% last year.

Weker says additional analysis is needed to determine whether, in aggregate, participants have increased or decreased contribution amounts.

The increased activity might be an extended economic shock and COVID-19 dislocation hangover, including job loss, but data would need to be studied further to establish any linkages, Weker explains.

The 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and economic stimulus bill—in response to the economic fallout of the COVID-19 pandemic—provided provisions for expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions (CRDs) from eligible retirement plans. The bill also increased the limit on the amount a plan participant could borrow from an eligible retirement plan.  

“I don’t have any data to support this hypothesis, but we know some people took money out of their plan with a [CRD], and we know that people are not paying them back,” Weker says. “But are people compensating for that leakage by increasing their contributions more than they would have in the past? That’s something we need to do more analysis on, but I would be interested to better understand how related that is to the last couple of years.”

Changing Focus

Participants are consuming different content than earlier in the pandemic, Weker says.

“Earlier on in the pandemic, there was a pretty dramatic shift to content related to more financial wellness topics and more near-term focus like debt management or budgeting,” she explains. “What we’re currently seeing is a shift back to more retirement planning, retirement saving content, more of a long-term focus and that could be reflective of where people are along the journey as we move through the COVID crisis and people are able to start looking more towards the future at this point.”

Personalized education to tackle a participant’s specific challenges, and follow-on behavioral nudges with resources and education is critical to T. Rowe Price further supporting its plan sponsors, Weker adds. For example, a participant who has a lower than optimal amount of retirement savings for their age and income will receive follow up tailored messages.

“We have continued to build out our personalized capabilities to build on those behaviors that they might have taken in the past about the data we know about them: their savings rate, plan, design, what their match formula might be, and we’re able to use that information in order to identify next best steps,” she says.

Plan participants also receive behavioral prompts urging action.

“Can you nudge them to increase their contribution rate, reconsider their asset allocation, maybe update their beneficiary information? That’s a primary way that the record keepers can work with plan sponsors and advisers because we have a line of sight into an individual’s financial situation, such that we can provide that really compelling information to help them appreciate the long-term benefit of those behavioral changes today,” Weker says.

She adds, “Participants might get a message saying, ‘You might want to consider increasing your savings rate because you’re [deferring] a little less than [what is recommended].’ And we provide a link to that calculator so participants can understand whether they can afford to go up by 1% or 2%?”

Voya is also using this period of high participant engage to devote resources to personalized communications aimed to help plan sponsors address participant concerns and retirement readiness.

“We watch which topics are of interest to people, and we’ll cater these to the time of year,” Vaillancourt says. “Things like budgeting and debt management are examples of what we would address in January.”