Automation, that demon of American job security, may be the patron saint of retirement savings.
The average balance in a 401(k) defined-contribution account at Fidelity Investments hit a record $95,500 in the first quarter, up more than 9 percent from a year earlier, the company reported Friday morning. Investment performance gets credit for 70 percent of the advance, and 30 percent was due to contributions from employees and employers.
Those combined contributions also hit a record high, at 12.9 percent. A record 27 percent of workers in a Fidelity plan increased their contributions, as a percentage of their salaries, over the past 12 months.
Those employees didn’t all suddenly wake up and get serious about saving. The increase is also due to a feature some large employers have added to plan designs to bump up savings rates.
Auto-escalation, as it’s called, often used in concert with automatic enrollment of new hires into the company 401(k), nudges employee contribution rates up one percentage point a year until they reach a cap. Many employers leave it to workers to opt in to auto-escalation, but 16.1 percent of Fidelity’s plans make it automatic on enrollment in a plan. That’s up from 14.4 percent in 2016′s first quarter.
“Auto-escalation isn’t all that widespread, yet is driving 50 percent of the savings increases” among that 27 percent of workers, said Jeanne Thompson, a senior vice president at Fidelity. ”It emphasizes how important auto-enrollment and auto-escalation have been to the retirement system.” Fidelity’s 401(k) analysis covers 22,100 defined contribution plans and the 14.8 million people in those plans.
It’s helping younger workers prepare for old age—sometimes without even realizing it—on the stark American retirement landscape. There, only one-third of workers save in a 401(k) or similar plan (many simply don’t have access to one), and about half of households with people 55 and older have no retirement savings at all, according to the U.S. Government Accountability Office.
Even at companies that offer a plan, only about half of workers sign up for it, and fewer than 40 percent of all employers automatically enroll their employees, according to the Society of Human Resource Management.