Fourth quarter volatility pushed average 401(k) account balances down from earlier record highs, but investors apparently didn’t panic, data from Fidelity Investment indicates.
The firm notes in its quarterly analysis of retirement savings trends that the average 401(k) balance experienced a 10% drop in Q4 2018, falling from a record high balance of $106,500 in Q3 to $95,600. The year-over-year average balance was down by slightly more than 8% from $104,300 in Q4 2017.
Not surprisingly, the number of “401(k) millionaires” also declined during this period. According to the data, the number of people with $1 million or more in their 401(k) dropped by more than 50,000, from 187,400 in Q3 to 133,800 at the end of Q4. Even still, this is nearly seven times the 19,300 investors who had $1 million in their Fidelity 401(k)s in the third quarter of 2008.
Staying the Course
Despite 2018’s market swings, the majority of investors continued to stay focused on their long-term retirement savings goals.
An overwhelming 98% of 401(k) savers continued to regularly contribute to their 401(k) in 2018. For the fourth quarter, the percentage actually increased to more than 99%, which is the highest quarterly percentage since the first quarter of 2011, according to the report. In terms of actual dollars contributed, the average 401(k) contribution for employees in 2018 was $6,850, which ties a record high.
What’s more, investors did not make significant changes to their 401(k) investments. Only 5.6% made a change to their asset allocation in Q4 2018, including those in a target date fund or managed account. Of those 401(k) investors who made a change to their asset allocation, 67.4% only made one change in Q4.
Kevin Barry, president of workplace investing at Fidelity Investments, explains that market corrections can make investors anxious, but the good news is that Fidelity didn’t see that type of behavior among the firm’s 30 million retirement savers. “Similar to 2008, they stayed the course by maintaining their asset allocation and continuing to add to their accounts, a good discipline that can be beneficial when markets rebound, as we’ve seen in the early part of this year,” says Barry.
Also encouraging is that 401(k) loan level dropped to a 10-year low. Fidelity notes that the percentage of workers with an outstanding loan from their 401(k) dropped to 20.3% — the lowest level since Q2 2009. Moreover, the percentage of workers initiating a new 401(k) loan dropped to 9.4% in 2018 — the lowest annual percentage since Q2 2009.
Power of Automation
For anyone who may have doubted its power, auto-enrollment appears to be a “changing force” as DC plan participation continues to increase. The average participation rate for plans with auto-enrollment was an astounding 87% in 2017, compared to 50.7% for those without auto-enrollment, according to the firm’s data.
Moreover, going back to 2009, the average participation rate for plans with auto-enrollment was 80% or higher, while the average participation rate for those without auto-enrollment hovered in the low- to mid-50s.
Additionally, of those employers offering auto-enrollment, a record 45% are now auto-enrolling at 4% or higher, up from 26% five earlier, the report notes. Moreover, auto-enrolled employees who have been invested in their DC plan for 10 years now have an average balance of $100,600.
Not surprisingly, 68% of Millennials are 100% invested in a TDF, due in part to being auto-enrolled in their 401(k) and defaulted into the option. Overall, as of the fourth quarter, 50.6% of Fidelity 401(k) savers are 100% invested in a TDF.