Data & Research February 8, 2023

Retirement Savers Held Course in 2022 Despite 401(k) Declines

The latest retirement plan participant tracking from Vanguard and Bank of America show retirement savers’ resilience last year. 

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With equity and bond markets down in 2022, most workplace retirement plan savers saw double-digit declines in their portfolios. But according to new data from the Vanguard Group and Bank of America, most participants stayed the course with their retirement savings.

In a preview of data drawn from 5 million defined contribution retirement plan participants, Vanguard reported a drop in 401(k) balances of 20% in 2022, but it also found that retirement-plan behaviors remained largely the same as in past years. The Valley Forge, Pennsylvania-based firm reported that 50% of participants made no changes to their payroll deferral percentage, 15% increased deferrals and 9% decreased their rate—all numbers in line with 2021, 2020 and 2019. Furthermore, only 6% of nonadvised participants initiated a trade in their accounts in 2022, compared with 8% during 2021.

“Given the uncertainty in the economy, it is remarkable that 94% of participants did not make an exchange throughout the entire year,” the Vanguard report stated.

Vanguard credited workers’ resilience, employers’ increased adoption of automatic enrollment over the last two decades and the prevalence for participants’ allocations to target-date funds, which are increasingly used as employers’ qualified default investment alternative. In data provided to PLANADVISER, Vanguard showed that participant use of “pure,” or single TDFs, rose to 59% last year, as compared to 56% in 2021.

“The increase is due to the trend in pure TDF investors,” a spokesperson said of the data. “Each year, this increases about two percentage points, primarily due to the increased adoption of automatic plan features such as automatic enrollment and TDFs as most plan QDIAs.”

Vanguard’s entire research report, How America Saves 2023, will be published in June.

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Bank of America, meanwhile, found a slight decline in the average 401(k) participant contribution rate in 2022, falling from 6.6% at the end of 2021 to 6.4% at the end of 2022, the Charlotte, North Carolina-based firm announced in its 401(k) participant pulse report released Wednesday. That data shows consumers “may have been a bit more focused on short-term financial needs last year,” the report stated.

The bank, which publicizes its retirement saving trends in a quarterly report, reported on the positive side that loan and hardship withdrawals declined quarter-to-quarter at the end of 2022. The bank said that 12% fewer participants took out loans from their retirement plans in Q4, as compared to Q3, and 18% fewer participants took hardship withdrawals. In addition, the average hardship amount also declined in Q4 from Q3 by 8%.

“Long-term retirement planning is a critical metric when considering an individual’s financial wellbeing, as well as the economy as a whole,” Lorna Sabbia, head of retirement and personal wealth solutions at Bank of America, said in the report.

Compliance February 8, 2023

Biden “Won’t Let” Republicans Cut Social Security

In the State of the Union address, Biden commits to protecting Social Security and Medicare from cuts to address the debt ceiling.

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President Joe Biden called Social Security and Medicare a “lifeline for millions of seniors” and said he would protect both programs from what he said are Republican calls to cut them back to reduce the national debt during Tuesday night’s State of the Union address.

In his second such address, Biden spoke of the need to raise the U.S. federal debt ceiling without “preconditions or crisis.” He specifically called out some Republicans for proposing cuts to Social Security and Medicare or sunsetting the programs every five years, which drew chants of, “Liar!” from the Republican side of the audience.

“Instead of making the wealthy pay their fair share, some Republicans want Medicare and Social Security to sunset every five years,” Biden said, meaning Congress would have to reapprove the programs in five-year intervals. “Other Republicans say if we don’t cut Social Security and Medicare, they’ll let America default on its debt for the first time in our history. I won’t let that happen.”

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House Speaker Kevin McCarthy, R-California, had made comments prior to the address that cuts to the programs are off the table following reports that House Republicans may use them as levers in negotiations over the debt ceiling.

The debt ceiling, currently set at $31.4 trillion, was reached earlier this year, and the Treasury Department is currently using “extraordinary measures” to avoid issuing new debt, which it expects will keep the government funded at least until early June.

Referencing taxes 17 times to an audience of members of Congress, his cabinet and invited guests in the televised address, Biden pointed to the legislative accomplishments of his first two years in office and repeatedly asked lawmakers to “finish the job” on additional priorities—including non-compete agreements and employment benefits like paid sick, family and medical leave.

Biden noted that the debt ceiling was raised three times during the administration of former President Donald Trump and accused Republicans of wanting to hold “the economy hostage” over the debt ceiling, unless he makes major policy concessions.

Regarding non-compete agreements, Biden referenced a proposed rule from the Federal Trade Commission which would ban the use of the agreements in employment. Biden said that “30 million workers had to sign non-compete agreements when they took a job. … Not anymore. We’re banning those agreements so companies have to compete for workers and pay them what they’re worth.”

Non-competes are contracts, often required as a condition of employment, which require a new employee to legally commit to not work for an economic competitor for a period of time after the end of their employment. The FTC estimates that such a ban could raise wages by $300 billion.

The proposal could also have implications for the registered investment adviser firms some retirement advisories are acquiring to broaden wealth management capabilities.

Labor Secretary Marty Walsh, who reportedly will resign his post to become the next executive director of the NHL Players’ Association, was the “designated survivor” from the Biden administration who did not attend the event.

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