Retirement Plan Participants Feel the Pain of Market Volatility

As retirement plan balances decreased due to market declines at the end of 2018, plan enrollees shifted their allocations from stock to cash, according to a T. Rowe Price summary.

As retirement plan balances decreased due to market declines at the end of 2018, plan enrollees shifted their allocations from stock to cash, according to a T. Rowe Price summary. The company believes that last year’s market “may have contributed to a rise in concerning participant behavior.” More participants in T. Rowe Price defined-contribution retirement plans chose to change their asset allocation in 2018 than did the year before.

The average retirement plan account balance fell from $92,402 in 2017 to $85,336 in 2018. Millennials (age 30 to 39) saw their account balances decrease the most out of all the age groups in 2018. The average participation rate among millennials is 86.9% for retirement plans with auto-enrollment and 47.2% for those without auto-enrollment.

Overall participation in defined-contribution plans was lower in 2018, but “was most pronounced in the under-30 population.” Participation fell faster for those under 30 who did not have an auto-enrollment plan. T. Rowe Price reported that auto-enrollment plans had a 96% higher participation rate than plans without auto-enrollment, concluding that younger people could benefit from a stronger auto-solution.

The percentage of plan participants choosing a target date product continued to rise. T. Rowe Price noted that younger plan participants are more likely to invest part or all of their money in a target date product. The age group that invests the highest amount (77.7%) of their investments in target date products is under 20. The percentage falls with age: 74.6% of the 20- to 29-year-old group invests some or all of their money in target date products, while only 58.5% of those age 30 to 39 go with a target date product. The study speculates that this trend toward having a plan that automatically adjusts its allocation as retirement approaches could be leading to fewer enrollees asking for investment advice.

Source: “Reference Point: Data Can Inspire Plan Changes”; T. Rowe Price, May 1, 2019.