Fidelity Reports Highest-Ever Average 401(k) Balances

“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.