Good news from Fidelity Investments on the subject of retirement planning. The Boston-based investing behemoth, the nation’s largest 401(k) provider, announced on Thursday that the average 401(k) balance it administers reached $75,900 at the end of the third quarter.
It’s the highest level reached since the company began tracking the data 12 years ago. The ending balance represents an increase of 4.2% from the end of the previous quarter and an 18% percent increase over one year prior when it was $64,303.
Fidelity’s analysis is seen as a bellwether of the larger 401(k) industry because of its sizable market share in the space. The company manages assets of $1.7 trillion in assets and currently oversees 12 million 401(k) accounts in 20,200 corporate defined contribution plans. It shows that average annual employee contributions grew 7.3% over the past five years to $5,900 at the end of the third quarter, up from $5,500 ending the third quarter 2007.
Meanwhile, average annual employer contributions–commonly called a company match–rose to $3,420 at the end of the third quarter, 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,” MacDonald, president of workplace investing for Fidelity, said in a statement.
Plan features designed to increase savings and participation, such as auto-enrollment and auto-escalation, have had a positive impact over the past five years, according to the company. During the third quarter, new participants who were auto-enrolled had an average deferral rate of 3.7%. But new participants in plans not utilizing auto-enrollment had an average deferral rate of 8.4%. This may be attributed to plans auto-enrolling participants at too low of a default deferral rate, such as the common 3%, the company notes. Fidelity suggests plans adopt a 6% auto-enrollment default rate with an automatic escalation of 1% annually, up to 10%.
Additional findings include:
- More participants increasing savings than decreasing: For the fourteenth consecutive quarter, more participants increased their deferral rate than decreased it (4.6% vs. 2.8%). Fidelity recommends participants save an average of 10 to 15% of their annual salary to meet their income needs in retirement6. Each single percentage point of added savings can help participants meet that goal.
- Contributions more balanced than years past: Participant contributions continue to be allocated to more balanced investments, such as target date funds (TDF). While new contributions into balanced options grew to 36% from 20% at the end of the third quarter 2007 (34% specifically into TDFs, up from 15% five years prior), new contributions into equities decreased to 46% from 62%. Contributions into conservative options remained relatively flat at 18% over the five-year period.