Go beyond a basic 401(k)

Go beyond a basic 401(k)

Give your employees more than just a 401(k), join the movement.

5 min read

COVID-19: How Technology Turns Your 401(k) into Financial First Aid

Jennie Wong
May 7, 2020
COVID-19: How Technology Turns Your 401(k) into Financial First Aid
Table of contents

As a technology-enabled 401(k) advisor, we’re always looking for ways to simplify retirement accounts for sponsors and participants. With the economic impact of the coronavirus pandemic, we knew participants would need financial options fast.

Since March, over 42 states instituted social distancing orders to contain the highly infectious coronavirus. While staying at home reduces our health risks, it imposes enormous financial hardship on millions of Americans. As of the end of April, over 26 million Americans had filed for unemployment in 5 short weeks. Even those who are still employed may be getting less pay from reduced work hours, tips or sales commissions, and 52% say cutbacks at work are affecting their financial situation. With business closures and increased unemployment, the stock market dropped 20% in 16 trading days.

52% say cutbacks at work affect their finances -Gallup

ForUsAll Gives 401(k) Participants Control

Many of our customers are in industries that were hit hard in recent months, such as restaurant and hospitality businesses. As people saw changes in their finances, we experienced a substantial increase in calls to inquire about options related to their retirement plan. We could tell that people wanted to take action to find financial relief, and we knew we had to move quickly and provide options in easy, accessible ways.

After falling into a bear market, recession, and even the Great Depression, the market has always recovered and went on to exceed its previous high-water mark.

But with the stock market drop, we suspected that some would see a buying opportunity. As one financial expert sums it up: “after falling into a bear market, recession, and even the Great Depression, the market has always recovered and went on to exceed its previous high-water mark.” For people with cash on hand, increasing investment now could result in gains when the market recovers. So we wanted to make sure we were giving people choices with their money.

1 - Click Technology Increases Likelihood of Contribution Adjustments

It was a no brainer to leverage our patent pending 1-Click technology to help our participants to update their contributions. Previously, we’ve seen that participants who can make 401(k) changes with a single click from an email are twice as likely to update their 401(k) contribution amounts. Our respondents to 1-Click emails agree:

"I didn’t have access to a 401(k) in many of my previous jobs and right now, I am very focused in building my retirement fund. When I received the email, I thought it was very helpful because I would never have thought of that. I immediately clicked boost to bump up my investment by 3%.”
– Clint S.

Within 4 days of the first shelter in place order, we launched a 1-Click feature to more than 12,000 people. Those who received the email could choose to either Pause or Boost their 401(k) contributions for 90 days. With one click in an email, their savings rate is automatically adjusted in the payroll system, and they can see a difference in their next paycheck. One of every six people who opened the email chose to Pause or Boost their 401(k) contributions. Those who Pause their contributions can receive quick financial relief by getting more take home pay in their paychecks. Those who Boost can invest more while stock prices are low.

With 1-Click in an email, employees can Pause or Boost their 401(k) contributions for 90 days.

It is important to note that these options are temporary. After 90 days, the participant will automatically go back to their contribution rate prior to clicking on the email, unless they decide to keep it.

People reported the 1-Click email appealed to them because these actions are temporary:

“I appreciate the gentle advice from the email. Changing my 401(k) contribution was not something I thought of doing. At first, I wasn’t too comfortable investing more money. But I thought for only 90 days, I can invest 3% more.”
– Dino C.

Moreover, we know the risks of people falling off track towards their retirement goals. Before we launched this feature, many people asked to turn off their contributions entirely. Pausing temporarily helps them get access to cash in the short term and continue to build their retirement savings in the long term.

Who Responded to Pause? Who Responded to Boost?

We hypothesized that many more people would choose to Pause compared to Boost their savings contributions. Yet, the actual results were closer than we anticipated: 57% paused while 43% boosted, indicating that many see the current market as a time to buy:

“When I received the email, I considered both options. It didn’t take long for me to confidently choose to boost. The market dipped a bit, and I decided to be more aggressive with my investment in hopes of seeing some gains when the market comes back up.”
– Cesar C.

“I decided to boost because the stock market is low right now and I want to invest more in the long term. Boosting my investment now will be beneficial for me later on.”
- Matt E.

We observed that women were more likely than men to pause across most income groups. On average, 63% of women chose to pause vs. 51% of men. This outcome aligns with industry research that reveals women tend to be more risk averse. Indeed, the reasons cited for pausing include the reduction of risk:

“I paused my contributions to build an emergency fund, especially now that the future feels less certain. The CARES act allowed me to postpone student loan repayments and now I feel a financial lift to be able to build my emergency fund.”
– Anonymous

As expected, other reasons to Pause contributions included addressing the various reasons for reduced income.

“I had two jobs and one of my jobs let me go because of shelter in place. I still have to pay bills, pay rent, and eat. When I saw the email, I clicked pause because I was curious how the extra cash can help me right now.”
– Eunice G.

“I am still employed and I am receiving my paycheck, but I am not working. However, I am not getting tips and it hurts. I paused my contributions so I can do my part to take care of my family.”
– George R.

On average, those who chose to pause received $187 more in take home pay each paycheck.

While we did not see much difference across age groups, we observed different preferences across income groups. As we expected, more people in the higher income groups boosted, with 64% of people with income greater than $150k/year choosing Boost vs. only 32% of people with income less than $50k/year.

On average, those who chose to Pause received $187 more in take home pay in each paycheck. The increase in take home pay provides much needed relief in many households to pay utility bills, buy groceries, and other necessities.

“Even though I am still getting paid, I have more expenses. With the pandemic, I have to stretch my paycheck to stock up on things like cleaning products, masks, and canned food. By pausing, I have more cash for the grocery store.”
– Abeanka B.

At the same time, some see an investment opportunity, because they are stuck at home and spending less.

“I want to see my retirement fund grow. It was hard to invest before. Now I am homebound and spending less money, it is a good time to invest more money into my 401(k).”
– Naomi B.

Additional Help for your Employees

At ForUsAll we are constantly innovating ways for how the 401(k) can provide a key financial benefit for people. Our mission is to help everyone have a brighter financial future, and we feel this mission is more relevant now than ever. The Pause-Boost feature is only the beginning. Since we launched the Pause-Boost feature, the CARES Act passed to give Americans access to their 401(k) balance with more favorable terms. We’ve now launched a CARES Act 401(k) Resource Center to help people understand what options are right for their financial situation, including a suite of new tools to simplify the CARES Act and make it actionable. Learn more about our continued efforts to provide relief during the pandemic.

Go beyond a basic 401(k)
Give your employees more than just a 401(k), join the movement.
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Jennie Wong
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This material has been prepared for informational and educational purposes only and should not be construed as a recommendation by ForUsAll, Inc., its affiliates or employees (collectively, “ForUsAll”)  to activate a cryptocurrency window or invest in crypto.  Investing in crypto can be risky and investors must be able to afford to lose their entire investment.  You should consult with your own advisers before activating a cryptocurrency window or investing in crypto.  ForUsAll does not provide legal, tax, or accounting advice. Please refer to your Plan's fee disclosure for more details.© 2023 ForUsAll, Inc. All rights reserved.
1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.