Retirement Contributions, Hardship Distributions Both Increased in Q1

Retirement plan participants may or may not be fans of Western movies, but 401(k) investing data for Q1 runs the gamut of investing behavior—good, bad and ugly—according to the Bank of America 401(k) Participant Pulse survey, which tracks the confidence of plan participants by examining contribution rates, loans and hardship distributions data.

Workers’ average contributions to workplace retirement plans to start the year increased 24% year-over-year to $1,880, and deferrals rose to an average of $820 from $660 last year.

The average account balance in March dropped to $78,000 from $86,000 from one year ago.

Hardship distributions were up a whopping 33% year-over-year in the first quarter.

Based on those numbers, Bank of America’s report noted the challenges but also celebrated workers’ apparent continued commitment to saving for retirement.

“In early 2023, fewer participants took loans, but for higher amounts, while hardships increased in number and amount,” the report stated. “At the same time, participants started the year with lower balances but higher contributions than last year. On a positive note, we see more participants increasing their plan contribution rates than decreasing their rates, across all generations.”

In Q1, 14.5% of participants increased—as opposed to 3.2% of participants who decreased—their retirement plan contribution rate, Bank of America found. Increases were led by Generation Z, as 23% of the cohort increased contributions, against 2.4% who decreased, and Millennials, 15.7% of whom increased deferrals, as opposed to 3.36% who decreased, the survey showed.

The report also looked at Q1 trends among participants with 401(k) loans:

• Loans decreased to 1.9% from 2.1% at the end of 2022;
• The average loan amount per participant increased to $8,550, up 14% from end of 2022; and
• The number of participants with a loan in default decreased to 14.3%, down from 15.2% in Q4 2022.

Generation X  had the highest percentage of outstanding loans, at 22.4%, followed by Millennials at 13.8%, the data showed.

Among participants taking hardship distributions, the survey found:

• The share of participants taking a hardship distribution increased to 0.46%, from 0.40% in Q4 and 0.30% in Q1 2022;
• The number of participants taking hardship distributions increased to 14,225, up 15% from Q4 2022 and 33% from Q1 2022; and
• The average participant hardship withdrawal amount increased to $5,100, up 8.5% from year-end 2022 but actually down from $6,000 in Q1 2022.

The report monitors 3 million participants with positive retirement balances that participate in plans sponsored by Bank of America employer clients using proprietary employee benefits programs,  according to the survey.