Wells Fargo Data Shows Auto Features Help

The number of eligible employees participating in Wells Fargo-administered plans rose 13% between 2011 and 2015.

Wells Fargo says the increase in participation correlates to an increase in plan sponsors opting for automatic enrollment of their participants, which now stands at 40% of Wells Fargo-administered plans versus 30% in 2011.              

The data shows increasing participation rates among younger employees, new hires and lower-earning workers over the past four years. Participation in 401(k) plans among Millennials has reached 55% compared to 45% in 2011. For newly hired eligible employees (meaning those who have reached the one-year mark of employment), participation has increased from 36% four years ago to 48% in 2015.  In addition, employees in a pay range of $20,000 to $40,000 in salary are participating at a rate of 59% versus 47% four years ago.

“We know that systematic, pre-tax savings and investing works. The first critical step along that journey is to get people in the plan,” says Joe Ready, head of Wells Fargo Institutional Retirement and Trust. “In addition, to see such gains among people who are historically the hardest to get saving for retirement is also quite encouraging.”

Although participation rates are rising, the deferral rates are relatively flat in the four-year analysis, with 38% of participants saving a minimum of 10% of their salary (which may include employer match) in their 401(k) plan—a modest increase from 34% four years ago.  Twenty-eight percent of Millennials currently reach a total contribution of 10% of pay, compared to 35% of Gen X and 45% of Boomers.

“Participating in the plan is the first step, but what we really need to see is a more robust increase in how much people are saving,” says Ready.

Sixty-two percent of all active participants are taking full advantage of their employer match. When analyzed by generational groups, this breaks down to 54% of Millennials, 63% of Gen X, and 70% of Boomers who are contributing enough to capture their full company match.

The average 401(k) balance is $93,015—up from $69,802 four years ago, largely due to gains in the stock market.

The Roth 401(k) usage is creeping up—with 12% of participants contributing to a Roth 401(k) compared to 8% four years ago. Millennials are the most significant users of Roth, with 16% contributing to a Roth 401(k), versus 11% of Gen X and 7% of Boomers.

“The decision to contribute after-tax money to a Roth 401(k) is an intentional one, because people typically are not automatically enrolled into Roth 401(k) plans,” says Ready. “I am encouraged that the younger participant group is putting thought into what can be a tax diversification strategy when it comes time to take money out of plans in retirement.”

Millennials are still the most diversified generation, and are making the biggest gains: 82% are meeting a minimum level of diversification—a minimum of two equity funds and a fixed income fund and less than 20% in employer stock—which is up from 72% four years ago. Gen X and Boomers have also seen strong gains in this category, with 78% and 75% respectively meeting the minimum level of diversification (compared to 70% and 68% four years ago).

Wells Fargo says this improved diversification is most likely due to the broader use of managed investment products, which continue to gain in popularity. Overall, 76% of participants use a managed product, up from 65% four years ago. Target-date funds in particular have seen strong growth, from 47% to 62% of participants having money invested in target-date options. When comparing by generation, 83% of Millennials, 75% of Gen X and 70% of Boomers use some type of managed product in their 401(k) plan.

In a review of data compiled from 2,036 companies where gender is indicated, there are also some noteworthy differences. Women participate in their 401(k) plans at a slightly higher rate than men: 65% to 62%. The number of women saving at least 10% of their salary is slightly lower: 38% of women vs. 40% of men contribute at least 10% of their salary, and 64% of men are taking full advantage of their company match, compared to 61% of women. Women use managed investment products more than men—77% of women compared to 74% of men—which might explain why they are better diversified. Eighty percent of women are meeting minimum diversification criteria compared to 78% of men.