401K Participation Surges Among Millennials

Youngest employees stand to benefit the most from participating in retirement plans as they have the longest time frame to allow their investments to grow before they need them. But, historically, they’ve been the least likely to participate.

That may be changing.

Data shows 64 percent more employees between ages 18 and 34 started contributing to 401(k) plans last year compared to 2013, according Bank of America Merrill Lynch data of the 2.5 million people participating in the retirement plans the company administers. The increase helped overall participation to nearly 80 percent among American workers with access to plans, up roughly 2 percent from the previous year.

The rise of auto-enrollment programs and new streamlined sign-up procedures have also played a big role in signing up young workers.

Research has shown participation rates jump overall after companies adopt auto-enrollment programs, but the difference is particularly dramatic among younger employees. One article published by BMO Retirement Services, for example, found participation rates among workers 25 to 34 years jumped 22 percent in plans with an automatic-enrollment feature. And for workers under 25, participation in auto-enrollment plans was more than double that in voluntary enrollment plans (29 percent versus 68 percent).

Bank of America Merrill Lynch found that 64 percent of clients offered retirement plans in 2014 that not only had automatic-enrollment features but automatic annual contribution increases as well, a 25 percent jump from 2013.

Millennials are reaping the benefits of these plan designs. They have everything at their fingertips. They can enroll in their 401(k) and change their contribution rate on their smart phones.

That’s leading many to enroll earlier than their predecessors did: The average millennial starts investing in a retirement plan at age 22 compared with age 27 for the average Gen Xer.

Financial education by firms like San Diego-based Harrington Capital Management has also helped boost retirement plan participation. And retirement is a hot topic across generations, as concerns grow about Social Security funding and rising health-care costs.

Millennials may also be influenced to contribute more to their 401(k)s by their baby boomer parents, many of whom haven’t saved enough for their own retirement. "More Millennials know zero savings is not acceptable. And anything above zero is a good first step toward retirement.

Categories: KUSI