The news in Fidelity’s latest quarterly report on 401(k) plans and IRAs is generally good. Average 401(k) account balances were $88,600 in Q1 2014, up 9% from a year earlier and 92% since Q1 2009. However, although auto plan features seem to be helping, there is cause for concern as well.
While deferrals stood at 8%, plans using auto-enrollment were at just 5% because default deferrals are too low and plans are not using auto-escalation. Fidelity reported that 77% of plans have an auto-escalation feature but just 12% are using them. For those plans using auto-escalation, just 7% of participants opt out. Overall, 20% of participants increased their deferral rates; 40% of those participants were Gen Y-ers, half due to auto-escalation.
One problem raised by a noted behavioral economist is that some people new to the company may be auto enrolled at a rate lower than what they were deferring at their previous employer, raising the question of whether record keepers could cooperate to ensure that new employees are deferring at a rate that is equal or better than their previous one.