How Americans are contributing to 401(k), 529, HSAs
New research from Ascensus reveals how changing financial and market landscapes are influencing individuals’ savings strategies
DRESHER, Pa., Sept. 3, 2019 /PRNewswire/ — Ascensus—whose technology and expertise help millions of people save for retirement, education, and healthcare—has released new insights across its universe of retirement, education, Achieving a Better Life Experience (ABLE), and health savings accounts on the Inside America’s Savings Plans microsite. As the nation’s largest independent recordkeeping services provider and government savings facilitator, Ascensus offers a unique, comprehensive perspective into how Americans are saving for the future.
Ascensus analyzed data across a population of over 88,000 retirement plans, 4.6 million 529 college savings accounts, 280,000+ consumer-directed healthcare accounts, and 20 ABLE plans for which it provided recordkeeping and administrative services as of 2018 year-end. The firm also highlighted health savings account (HSA) industry data from Devenir, a national leader in providing customized investment solutions for HSAs and the consumer-directed healthcare market. The following themes provide insights into how savers are engaging with these tax-advantaged savings vehicles.
Plan sponsors and savers see the value in automatic savings models:
401(k) plans designed with automatic enrollment and automatic escalation features saw an average plan-weighted participation rate of 81%, which was 10 percentage points higher than that in plans without automatic enrollment.
In 2018, 35% of 529 account owners had scheduled recurring bank contributions and 20% of ABLE accounts leveraged automatic savings methods. Approximately 6% of 529 account owners utilize payroll direct deposit, but there is certainly more opportunity for employers to offer and promote 529 account payroll integration to help employees seamlessly make regular contributions.
According to Devenir, 26% of all HSA contributions came directly from an employer and 56% came from an employee through their workplace in 2018. By pairing HSAs with high deductible health plans and enabling payroll direct deposit, employers can help employees build a foundation of health savings.
Digital tools have a positive influence:
Ascensus’ Retirement Outlook Tool allows savers to refine retirement savings goals, illustrating how their current savings levels could impact future readiness. In 2018, 26% of first-time tool users were saving at an average rate of 8% within a few weeks of engaging with it. This suggests that access to the right planning tools can make a positive difference in getting employees closer to a savings rate of 9% or more, the minimum rate that “financially prepared” savers have selected according to Ascensus’ partner Financial Finesse, the largest independent provider of unbiased workplace financial wellness programs in the country.1
The firm’s Ugift platform enables family and friends to simply and securely make gifting contributions to beneficiaries’ 529 accounts. The Ugift website allows users to establish gift-giver profiles and schedule recurring gifts to streamline the process—and gifting behaviors are on the rise as a result. As of 2018 year-end, gift givers had established 26,284 online profiles and 10,438 recurring gifts. Overall, the Ugift program saw a 345% year-over-year increase in dollars gifted to 529 accounts.
Changing financial and market landscapes are influencing individuals’ savings strategies:
Ascensus’ 401(k) platform data highlights that individuals under 25 years old are saving at lower savings rates than those in older age groups, which suggests the need for further investigation into the impact of competing financial priorities, including student loan debt. However, there is a notable, positive difference in progress for savers between 25 and 34 years old: Of all retirement savers on our platform who have found that they are “on track” to meet their goals, 20% of them are between 25 and 34 (versus just 3% for the under-25 age group).
As tuition expenses continue to rise, families see the value of investing in 529 accounts to build a foundation of education savings. The market downturn in 2018 had a minor impact on overall 529 account balances across all demographics, but this average balance still reached nearly $23,000 as of 2018 year-end. Another key trend tied to this landscape of higher education expenses is the entrance of older generations of account owners into the 529 market. Account owners ages 55 to 64 and over 65, with average beneficiary ages of 17 and 13 respectively, had the second- and third-largest average balances of all age groups, both exceeding $22,000.
Healthcare expenses continue to increase exponentially, with the Employee Benefit Research Institute (EBRI) reporting that the average couple will now cumulatively need $399,000 for a 90% chance to cover their healthcare expenses in retirement. Heightened awareness for these staggering costs and the increasing popularity of high deductible health plans have driven HSA enrollment to new highs. There are currently over 25 million HSAs held by savers across the U.S. with a combined $53 billion in assets.
“We’ve seen a shift in the way that individuals across different life stages are saving for themselves and their families,” said David Musto, president of Ascensus. “To continue to address the savings deficit millions are facing, our industry needs to focus on offering tools and resources that make it quick, simple, and automatic for savers to track their progress.”
“Employers, state governments, and financial advisors will continue to play an integral role in encouraging individuals to make the most of the savings vehicles and tools available to them,” Musto concludes.
For additional trends and insights from Ascensus, visit pulse.ascensus.com.
12018 Year in Review: A Closer Look, Financial Finesse Think Tank Research, May 2019.
Ascensus is the largest independent recordkeeping services provider, third-party administrator, and government savings facilitator in the United States. The firm delivers technology and expertise to help millions of people save for what matters most—retirement, education, and healthcare. For more information about Ascensus, visit ascensus.com. View career opportunities at careers.ascensus.com.