The impact of loans and cashing out of 401(k) plansWhile balances are on the rise, so are 401(k) loans: 20% of participants now have an outstanding loan, up from 19% two years ago – an increase of 5.4%. Twenty-six percent of participants who left their employers in 2013 cashed out their 401(k) accounts, versus leaving their balances in the plan or immediately rolling over to IRAs. Upon cashing out of their workplace plans, employees have 60 days to decide if they will roll their cash into an IRA. “Loans and cashing out of one’s 401(k) upon leaving an employer are two of the biggest factors leading to the potential for significant erosion of a person’s retirement savings,” said Ready. “As account balances climb with the markets performing as they have the last two years, unfortunately loan usage has also continued a slow but steady rise.” Roth 401(k) on the rise Usage of Roth 401(k) plans, when offered by employers, jumped from 8.6% of participants to 10.4% - a gain of 1.9 percentage points, or 22% from two years ago. Millennials are the biggest users of the Roth 401(k), which takes after-tax contributions and allows participants to withdraw funds tax-free in retirement: 15.3% of millennials use Roth 401(k), up 2.4 percentage points from the prior year. Managed accounts continue to gain popularity The number of participants with a balance that is diversified across a variety of asset classes is up 4.2 percentage points over the past 2 years (2.1 percentage points in 2013). The increase in diversification is due to higher adoption rates of managed investment options. The percent of participants who have some money in a managed option has jumped 4.9 percentage points over two years and 2.2 percentage points in 2013. The use of managed investments is highest among new hires and lowest among long-term employees, which could be due to the trend of using target date as a default investment option. The change in recent years to using managed investments (especially target-date funds) is having a real impact on participant diversification.
- Total assets in managed investment options are up to 26% from 22% during the course of 2013
- Fixed-income investments or cash equivalents now represent 18% of 401(k) assets, down from 26% two years ago
- The percent of participants who do not use a managed investment option and have their entire balance in a single investment is down to 10%, from 12% two years ago
About Wells Fargo & Company (Twitter @WellsFargo)Wells Fargo & Company (NYSE: WFC) is a nationwide, diversified, community-based financial services company with $1.5 trillion in assets. Founded in 1852 and headquartered in San Francisco, Wells Fargo provides banking, insurance, investments, mortgage, and consumer and commercial finance through more than 9,000 locations, 12,000 ATMs, and the internet ( wellsfargo.com), and has offices in 36 countries to support customers who conduct business in the global economy. With more than 264,000 team members, Wells Fargo serves one in three households in the United States. Wells Fargo & Company was ranked No. 25 on Fortune’s 2013 rankings of America’s largest corporations. Wells Fargo’s vision is to satisfy all our customers’ financial needs and help them succeed financially. Wells Fargo perspectives are also available at blogs.wellsfargo.com and wellsfargo.com/stories. About Wells Fargo Institutional Retirement and Trust Wells Fargo Institutional Retirement and Trust is a national leader in providing total retirement management, investments, and trust and custody solutions tailored to meet the needs of institutional clients. Wells Fargo ranks eighth in the number of plan participants and assets in the 2013 PLANSPONSOR Magazine Recordkeeping survey, with 3.7 million retirement plan participants, and $297.6 billion in retirement plan assets (as of 12/31/13).