401(k) Scorecard Shows Good News and Bad News

November 15, 2010 (PLANSPONSOR.com) - The Bank of America Merrill Lynch "401(k) Contribution Activities Scorecard" for Q3 2010 found modest improvements in participants’ saving behavior, but also record levels of loans and hardship withdrawals.

The report is based on the activities of approximately 1.4 million actively contributing participants and found that among those who have taken some type of savings action year-to-date in 2010, 67% took a positive action (started or increased saving) versus 33% who took a negative action (stopped or decreased saving) – compared to 60% who took a positive action and 40% who took a negative action during the same six-month period in 2009.

Kevin Crain, head of institutional client relationships for BofA Merrill Lynch, told PLANSPONSOR that the ratio between positive and negative action has been steadily improving each quarter since Q2 2009.  When Crain started paying close attention to this ratio in Q4 2008, he says the ratio was horrible-less than 50% taking positive action, with slightly more than 50% taking negative action.  The ratio was about 50/50 in Q1 2009, and in Q2 2009, the ratio slowly started to favor positive action.  Now, he said, we’re getting close to a 70/30 ratio, which would be great news.  

In fact, Crain pointed out that the ratio of participants enrolling in 401(k)s or increasing their contributions versus those not contributing at all or withdrawing from the plan, is mostly likely even better than it was before the recession.  The reason for this, he says, is dramatic increases in the number of plans using auto-enrollment and auto-increasing features, as well as making advice that is more readily available. These trends are seen in the BofA Merrill Lynch plans:

• Year-over-year (since September 30, 2009), BofA Merrill Lynch has seen a 23% increase in plan sponsor adoption of its product, Advice Access, with nearly 400 plan sponsor clients now live with it, out of approximately 1,500.  (Crain says 25 out of 30 of BofA Merrill Lynch’s largest plans have incorporated the tool.)
• Plan participants using Advice Access rose 83%, with another 54% implementing specific advice into their plan.  
• The study reports a 17% increase in the use of auto-increase, with 128 plans live with this feature, and an 8% increase in the use of auto enrollment, with 247 plans live with this feature.