The world is aging, and the life expectancy is increasing. The number of older persons has tripled over the last 50 years and it will more than triple again over the next 50 years. More older people and longer life expectancy will lead to more demand for retirement savings. According to the article written by Stephen Miller, CEBS, the average 401(k) balance in plans administered in the U.S. by Fidelity Investments reached a record high of $77,300 at the end of 2012, up from $69,100 one year earlier-an increase of 12 percent. About two-thirds of the 2012 increase was attributable to market action, and one-third was due to participant contributions. Fidelity Investments is one of the largest plan service providers.
Another study conducted by research firm, LIMRA, indicated that Generation X workers (born 1965-1980) have contributed to their current employer's defined contribution plan for nine years, accumulating nearly $70,000 (January, 2013). On the other hand, Generation Y workers (born 1980-2000) have contributed to their current employer's defined contribution plan for four years, accumulating slightly less than $26,000. According to Cecilia Shiner, senior analyst, LIMRA Retirement Research, while there are a lot of attentions on the Baby Boomers (78 million), nearly 116 million Americans (aged 20-47) need help on how to plan and save for retirement. As quoted from Cecilia Shiner:
Most Gen X and Y Americans will have to rely solely on their savings to fund their retirement, yet few are taking full advantage of the retirement savings vehicles available to them.
The study further suggests that if financial literacy could be improved for these consumers, the likelihood of participating in their employers' plans may rise.
Furthermore, employer contribution does encourage more 401(k) contributions. According to the Stephen Miller's report,
Participants on average saved 8 percent of their annual salaries in their 401(k) plans. When the typical employer contribution is factored in, be it a match or profit sharing, the average participant's total savings rate increases to 12 percent.
In short, the demand for retirement savings is increasing for all age groups as more Americans will have to reply on their savings to fund their retirement. The retirement saving participation rate will be improved by increasing financial literacy for consumers and employer contribution. A great detail report on trends in 401(k) plans and retirement rewards can be reviewed here.
Mega banks, such as Bank of America (NYSE:BAC), JPMorgan Chase (NYSE:JPM), and Wells Fargo (NYSE:WFC), are competing in an effort to win a bigger share of the trillions of dollars in 401(k) saving plans. According to Bloomberg's report:
Bank of America Corp., the second- largest U.S. lender, attracted record new assets last year to its unit servicing retirement and other employee-benefit plans as it cross-sold products through the commercial bank.
BAC saw $24.3B in new assets, a 28 percent increase from a year earlier, said Kevin Crain, head of institutional retirement and benefit services at Bank of America Merrill Lynch. Bank of America and JPMorgan Chase & Co. have been trying to win more of the $3.5 trillion that Americans held in 401(k) retirement plans as of September. BAC and JPM are trying to compete with traditional account managers, such as mutual-fund firms Fidelity Investments and Vanguard Group Inc. Wells Fargo had also been adding features that allow employers to more closely track their employees' saving and investing to attract more 401(k) customers.
"The highest-selling product in terms of extending the relationship has been the 401(k)," said Bob Arth, regional executive for the global commercial bank. Bank of America has been trying to expand its retirement business since its 2009 acquisition of Merrill Lynch by selling to clients of the commercial bank. Cross-selling has been the strategy, laser-like focus, post crisis when banks try to find new sources of revenue, according to Sophie Schmitt, a senior analyst at Aite Group.
Investors look to benefit from raising demand for 401(k) can review the following investment targets:
Bank of America Corp: (BAC) is currently trading at $12.57. BAC had been trading in the range of $6.72-$12.66 in the past 52 weeks. The company has a market cap of $135.48B, with a high beta of 2.38. BAC has a low Forward P/E of 9.8 (vs. the S&P 500's average of 13.9). BAC is currently trading below its book value of $20.24 and is offering a forward annual dividend yield of 0.30%.
JPMorgan Chase & Co.: (JPM) is currently trading at $50.02. JPM had been trading in the range of $30.83-$51.00 in the past 52 weeks. The company has a market cap of $191.45B with a beta of 1.37. JPM has a lower P/E of 9.6 (vs. the industry average of 18.9) and lower Forward P/E of 8.3 (vs. the S&P 500's average of 13.9). The company is currently trading below its book value of $51.27 and is offering a forward annual dividend yield of 2.40%.
Wells Fargo & Co: (WFC) is currently trading at $38.20. WFC had been trading in the range of $29.80-$38.20 in the past 52 weeks. WFC has a market cap of $201.35B with a beta of 1.36. WFC has a lower P/E of 11.4 (vs. the industry average of 14.5) and lower Forward P/E of 9.7 (vs. the S&P 500's average of 13.9). WFC is currently trading above its book value of $27.66 and is offering a forward annual dividend yield of 2.70%.
Investors can also review the following ETFs to gain exposure to above banks:
- Financial Select Sector SPDR (NYSEARCA:XLF)
- Dow Jones U.S. Financial Services Index Fund (NYSEARCA:IYG)
Note: All prices are quoted from the closing of March 15, 2013. Investors are encouraged to research further on 401(k) trend. However, the list above is provided only as a starting point for interested investors to research further, and the author does not recommend individual stocks at this moment.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BAC, WFC over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.