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Average 401(k) Savings Rates Hit Record Levels; Balances Bounce Back

Industry Trends and Research

Participants appear to be focused on creating a secure financial future, as new research finds a record-setting pace for retirement plan savings. 

According to Fidelity’s second quarter 2019 analysis of retirement savings trends, the average employee contribution rate climbed to a record-level 8.8%, nearly a full percentage point higher than 10 years ago. When combined with the employer contribution, the average DC plan total savings rate as of the second quarter was 13.4%, compared to 11.9% in 2009. 

The firm’s research, which examines contribution and savings behaviors across more than 30 million retirement accounts, also finds that nearly a third (32%) of savers increased their contribution rate in the second quarter – the highest quarterly percentage ever and nearly three times the 11% of savers who increased their contribution rate in 2Q 2009. Encouragingly, 38% of Millennials and 34% of women increased their savings rate. 

These findings appear to complement findings in the Plan Sponsor Council of America’s 61st Annual Survey of Profit Sharing and 401(k) Plans released at the end of 2018, which shows that employers are contributing an average of 5.1% of pay to their employees’ 401(k) accounts, the highest percentage ever recorded in the history of the survey. This rate of contribution, combined with an average savings rate by participants of 7.1% in the survey, yields a total savings rate of more than 12%. 

Average retirement account balances continued to increase in 2Q 2019, reaching near-record levels after experiencing a dip at the end of 2018, Fidelity further reports. The average 401(k) balance rose to $106,000, a 2% increase from $103,700 in the first quarter of 2019. The year-over-year average balance is also up roughly 2% from $104,000 in Q2 2018. This compares to an average balance of $52,600 as of 2Q 2009. 

Auto-Enrollment Up

Even more encouraging, since the passage of the Pension Protection Act in 2006, the percentage of employers that automatically enroll new employees in the company’s 401(k) has increased to nearly 35%, according to Fidelity’s data. 

As the number of employers auto-enrolling employees has grown, the default contribution rate for auto-enrolled employees has also increased steadily. As of the end of 2Q 2019, 20% of employers defaulted auto-enrolled employees at a contribution rate of 6% or higher – more than three times the 6% of employers that defaulted employees at this rate as of 2Q 2009. 

What’s more, a record 46% are now auto-enrolling at 4% or higher, up from 27% five years ago. And while a 3% default contribution rate is still the most popular among employers, Fidelity notes that the percentage of employers defaulting at this rate has dropped to 44%, down from more than 60% 10 years ago. This finding also appears consistent with PSCA’s survey, which found that more than half of employers that embrace automatic enrollment do so with default deferral rates above the traditional 3% threshold – twice as many as a decade ago.

Participation Rates

Auto-enrollment also appears to be a driver of DC plan participation rates. According to Fidelity’s data, 91% of employees who are auto-enrolled don’t opt out, and participation among Millennials has increased by 82% over the last 10 years, due in part to employers adopting auto-enrollment. Moreover, the difference in the average participation rates of plans that auto-enroll versus those that do not continues to be striking: Data for 2018 shows an 88.3% participation rate for auto-enrolled plans, compared with only 52.3% for non-auto-enrolled plans. 

More Millionaires 

Fidelity reports that the number of 401(k) millionaires also reached record levels in 2Q 2019. The number of people with $1 million or more in their 401(k) increased to a record 196,000, up from 180,000 at the end of the first quarter. 

Continuous savers have also been rewarded, Fidelity’s data shows. Among participants who have been in their 401(k) plan for 10 years straight, the average balance stands at $305,900, more than five times the average balance of $59,900 for this group 10 years ago. As of the end of 2Q 2019, more than 1.6 million individuals had been in the same 401(k) plan since the same period in 2009. 

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