SECURE 2.0 Addresses Financial Stress Among Younger 401(K) Participants

June 15, 2023 — Boston

Emergency savings and student debt provisions could enable Gen Z, Millennials, and Gen X to better mitigate financial stresses

In light of the provisions related to emergency savings accounts and student debt under SECURE 2.0, plan sponsors and recordkeepers now have more leeway to address concerns among younger active workers, according to Cerulli’s latest report, U.S. Retirement End-Investor 2023: Personalizing the 401(k) Investor Experience.

The enactment of the emergency savings provision in SECURE 2.0 is timely. According to the research, not having enough emergency savings is rated as one of the most commonly cited factors causing financial stress among Generation Z (28%), Millennial (25%), and Generation X (21%) 401(k) participants. “Plan sponsors and recordkeepers stand to help facilitate better emergency expense preparation among the participants they serve. Adopting this optional SECURE 2.0 provision is one of the ways they can accomplish that goal,” says David Kennedy, senior analyst.

SECURE 2.0 also provides a provision to help participants accumulate savings through their employer’s 401(k) match while making student loan payments, potentially impacting the 24% of participants who indicate they carry student loans. Within this group, student loan debt is cited as a top source of financial stress for 17% of Generation Z and 11% of Millennials.

According to the research, an overwhelming 63% of student debt holders (regardless of income level) indicate that they would continue to make the same payments to their students loans and continue to save the same amount into their retirement accounts with the provision, while 35% of participants indicate that they would reduce the amount saved into their retirement to pay down their student loans more quickly.

Broken down by income level, the research finds nuances. For instance, households with fewer investible assets are more likely to reduce the amount they are contributing to their retirement plan to pay down their student loans more quickly. 36% of participants with $100,000 or less in investable assets would take this course of action, while 31% of households with $100,000 to $250,000 and 29% of households with $250,000 to $500,000 in investable assets would follow suit.

“It will take time to see how 401(k) participants’—specifically younger generations—savings rates, student debt load, and financial stresses evolve based on provisions introduced by SECURE 2.0. However, plan sponsors now have additional tools at their disposal to address sources of financial stress, potentially improving wellness for this emerging cohort of active participants,” concludes Kennedy.

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