Are employers cutting back on contributions? Will the Secure Act 2.0 help keep it relevant?
While it is statistically true that employers are cutting back on their contributions to these plans, we don’t have large concerns over a massive overhaul of the 401k universe. One reason we see that employer contributions to 401ks have waned in the last couple years is contributed to by reduced contributions by employees, potentially driven due to fears of recession and inflation. If we look at the numbers, employers contributed an average of 5.6% in 2021 compared to 4.5% in 2023. Employee contributions had a similar drop, falling from 8.3% in 2021 to 7.4% in 2023. These statistics cannot be viewed in isolation since one impacts the other.
401ks remain a strong tool for employees to take advantage of for retirement, especially with the recent changes that have been implemented through the Secure Act 2.0. This act increases the age where the participant is forced to take required minimum distributions, allows for employers to provide matches in Roth 401ks, increases the catchup contribution for those approaching retirement, and requires most employers to auto enroll their eligible employees into a 401k plan. These changes are all very positive for those looking to take advantage of these retirement accounts and shows the commitment that lawmakers have to the current system.