Plan design enhancements combined with positive savings behaviors and strong market conditions have helped push average 401(k) balances to record levels.
Among the highlights in Fidelity Investments’ fourth quarter 2019 analysis of retirement savings trends is that the average 401(k) balance rose to $112,300, a new record high and a 7% increase from the previous quarter’s balance of $105,200.
The year-over-year average balance increased 17% from $95,600 in the fourth quarter of 2018. The average 403(b)/tax exempt account balance increased to $93,100, up 6% from last quarter and an increase of 18% from the previous year.
The number of 401(k) millionaires also reached another milestone, increasing to a record 233,000 people, up from 200,000 in the third quarter and 21,000 at the end of 2009.
Average Retirement Account Balances
|
|
Q4 2019 |
Q3 2019 |
Q4 2018 |
Q4 2009 |
|
401(k) |
$112,300 |
$105,200 |
$95,600 |
$62,600 |
|
IRA |
$115,400 |
$110,200 |
$98,400 |
$63,900 |
|
403(b)/Tax Exempt |
$93,100 |
$88,000 |
$78,700 |
$48,400 |
Meanwhile, the average employee savings rate reached a record 8.9% in the fourth quarter, while the average total savings rate (employee contributions plus company match) reached 13.5%, tying a record level last reached in the second quarter of last year, according to Fidelity.
Throughout 2019, 33% of plan participants increased their savings amount, with the average increase just over 3%. Of the workers who increased their savings rates, 40% proactively took steps to do so on their own, while 60% had their savings rate increased automatically through their employer’s plan.
Among those who have been in their 401(k) plan for 10 years straight, the average balance reached a record $328,200, eclipsing the previous high of $306,500 from the third quarter.
For female investors, the average 10-year 401(k) balance grew to $261,000, an increase of 21% from a year ago and the first time the average balance for this group passed the quarter million-dollar mark, Fidelity notes. The average balance for Millennials who have been in their 401(k) plan for 10 years straight also reached another record high at $149,800.
“The growth in savings levels over the last 10 years demonstrates the positive impact of taking a long-term approach to retirement, and recent Fidelity research demonstrates workers who do so have reason to feel increasingly confident about their retirement readiness,” says Kevin Barry, president of Workplace Investing at Fidelity Investments.
Plan Design Enhancements
It’s not just employees who are taking positive steps, but employers are also making changes to their plans to help employees.
Fidelity notes, for example, that more employers are automatically enrolling new employees and at a higher default contribution rate. As of the fourth quarter, 35% of employers automatically enrolled new workers in their 401(k) plan and more than a third of plans (34%) now enroll new workers at a savings rate of 5% or higher, compared with only 11.8% that enrolled workers at that level in 2009.
The firm also finds that 90% of employees who are auto enrolled don’t opt out. What’s more, the average participation rates for auto-enrolled is significantly higher compared to non-auto-enrolled plans at 87% and 52.7%, respectively for 2019. These percentage differences were very similar going back over the past decade.
The percentage of 401(k) plans automatically increasing the contribution rate for employees has more than doubled over the last decade, from 9% in the fourth quarter of 2009 to 19% during the same period in 2019. It’s worth noting that the SECURE Act will now allow plans to auto-increase employee contributions up to 15%, from a previous cap of 10%, which may pave the way for more plans to adopt auto-escalation.
The number of workplace plans offering a managed account continues to increase. The percentage of 401(k) and 403(b) plans offering individuals this option grew to 32% in the fourth quarter, nearly doubling the 17% of plans that offered this option at the end of 2014.
In the “less is more” category, the average number of investment options offered among large employers continues to trend downward. According to the firm’s data, the largest corporate DC plan sponsors now offer around 16 investment options in their lineup, as compared to 17 in 2014 and 30 in 2009.
