Highest-Ever Average 401(k) Balances Reported

Employer contributions rose at faster rate than employees’ over past five years

By SHRM Online staff Nov 12, 2012

The average balance in 401(k) accounts managed by Fidelity Investments reached $75,900 at the end of the third quarter 2012, the highest it has been since the company began tracking account data more than 12 years ago.

The ending balance represents an 18 percent increase over one year prior when it was $64,300, according to Fidelity’s analysis of its 12 million 401(k) accounts in more than 20,200 corporate defined contribution plans.

The analysis showed that:

Annual employee contributions grew 7.3 percent over the past five years to $5,900 at the end of the third quarter 2012, up from $5,500 ending the third quarter 2007.

Average annual employer contributions rose to $3,420 at the end of the third quarter 2012, up 19 percent since the third quarter 2007 when it was $2,880.

“It’s encouraging to see companies making a greater contribution to their employees’ 401(k) plans, as we know a healthy employer match not only impacts employees’ retirement savings but also has a positive impact on their behavior, ultimately leading to better outcomes,” said James M. MacDonald, president of Fidelity Workplace Investing. Employers could do even more to help boost savings, such as increasing their default automatic enrollment rate and using automatic annual increase programs that gradually raise an employee’s savings rate, he added.

While auto-enrollment and auto-escalation have had a positive impact on employee savings over the past five years, employers could use them more effectively to drive even stronger outcomes, according to MacDonald, who pointed out that during the third quarter 2012:

New participants who were auto-enrolled had an average deferral rate of 3.7 percent.

New participants in plans not using auto-enrollment had an average deferral rate of 8.4 percent.

This may be attributed to plans that enroll participants automatically at too low a default deferral rate, such as the common 3 percent of salary, noted MacDonald, who advises that plans adopt a 6 percent auto-enrollment default rate with an automatic escalation of 1 percent annually, up to 10 percent.

Many financial advisers recommend that participants save an average of 10 to 15 percent of their annual salary to meet their income needs in retirement. "Each single percentage point of added savings can help participants meet that goal," said MacDonald.

The analysis also revealed that contributions were more balanced than years past:

New contributions into balanced-asset options, including mixed stock/bond funds and target-date retirement funds, grew to 36 percent of all contributed dollars at the end of the third quarter 2012, up from 20 percent at the end of the third quarter 2007.

New contributions specifically into target-date retirement funds grew to 34 percent, up from 15 percent five years prior.

“The report’s findings are consistent with the continuing movement over the past decade toward employers providing retirement benefits via defined contribution 401(k) plans rather than defined benefit pension plans, ” said George Braun, a partner in the employee benefits group of law firm Pepper Hamilton, in a comment to SHRM Online. “As employers stopped or cut back on providing pensions for their workers, they put more emphasis on helping employees build 401(k) accounts, including both higher employer contributions and more retirement and investment planning and education for employees.”

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