Data and Research May 9, 2023

Retirement Contributions, Hardship Distributions Both Increased in Q1

Despite the markets dragging down retirement account balances, a snapshot of early-2023 activity shows workers still saving.

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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.

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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.

Deals and People May 8, 2023

October Three Consulting Is Growing by Acquisition

Purchase of Retirement Learning Center expected to add educational resources and guidance for plan advisers.

 

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October Three Consulting LLC, a Chicago-based actuarial, consulting and technology firm specializing in a “modern defined benefit” offering, is set to acquire the Retirement Learning Center, the two firms announced in a joint statement Monday.

“We’ve always worked with advisers, but RLC’s advice offering is really focused on the adviser community and helping them grow their practices,” says Jeff Stevenson, October Three’s president and CEO. “We’re very good at the technology, and we’re very good at working with advisers on understanding plans and transparency with exiting plans. …. RLC is the natural extension of that work. It’s essentially a help desk where advisers can call in with questions and get support.”

October Three recently launched a product called O3 Prime, a hybrid retirement plan that consists of two accounts running side-by-side: a 401(k) plan funded by the employee and a cash balance pension plan funded by the employer.

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Through this acquisition, October Three will maintain the Retirement Learning Center brand, and October Three Consulting will continue to focus on delivering actuarial consulting, design and administration of retirement plans, according to the announcement.

“We are delighted to be part of October Three,” said Andy Larson, a co-founder of RLC and its director of retirement education, in a statement. “Their passion for supporting the advisor community is consistent with our business purpose. Combined with their commitment to technology and innovation we see incredible growth in our product offering and the support we can provide to our customers.”

Founded by Larson and John Carl in 2003, Brainerd, Minnesota-based RLC offers ERISA and IRA consulting services to the financial services industry. Carl unexpectedly passed away in 2022.

“We have been a big admirer of John Carl and the entire RLC team for many years,” Stevenson said in a statement. “In acquiring RLC it is our intention to honor the legacy of John by investing in the wonderful business he created and continuing to serve the advisor community with excellence and passion.”

Stevenson says October Three will be working to present a new, integrated platform to advisers who use RLC in September. That integration will provide RLC with access to data from October Three’s thought leadership, a large database of existing plans, and retirement plan analytics, among other resources.

O3 Edge, an October Three prospecting solution, will also be integrated into RLC’s offering. O3 Edge will provide the firm’s clients with more resources, tools and 24/7 access to educational and prospecting materials, according to October Three.

“Our grander vision is to ensure that all Americans feel prepared to retire both financially and emotionally,” Stevenson says. “A lot of that comes through one-on-one contact with the adviser community, fulfilling our grander vision and getting us closer to that idealistic state.”

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