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Account Balances Rebound from First Quarter Volatility

Average individual 401(k), 403(b) and IRA account balances bounced back after a slight dip in the first quarter, showing solid year-over-year growth, according to data on Fidelity Investments clients.

Highlights from the firm’s second quarter 2018 analysis of retirement savings trends — based on data from more than 30 million retirement accounts managed by Fidelity — shows that the average Fidelity 401(k) account balance increased to $104,000. This is just under the all-time high balance of $104,300 from the fourth quarter of 2017, and represents a 1% increase from last quarter and a solid 6% increase from a year ago.

401(k) (and IRA) Millionaires

The firm also notes that the number of “401(k) millionaires” continues to increase. At the end of the second quarter, the number of people with $1 million or more in their Fidelity 401(k) increased to 168,000 — an increase of 49,000 from the second quarter of 2017. In addition, the percentage of Fidelity 401(k) millionaires who are women increased to 21%.

“It makes sense that there are more 401(k) millionaires and it’s a testament to the strength of the system,” notes Brian Graff, NAPA’s Executive Director and CEO of the American Retirement Association. “After being enacted in 1978, the 401(k) really only got started in the early ’80s – and now you have documented success, based on a generation of individuals who have been utilizing the 401(k) as their primary savings vehicle, combined with strong market returns.”

Among Fidelity IRA owners, the number of clients with $1 million or more in their accounts reached 156,000 at the end of second quarter, 26% of whom were women.

Impact of Auto Enrollment

Fidelity’s analysis also shows that 33% of the firm’s 22,600 401(k) plans auto-enroll new employees, more than double the percentage (15%) that did so in 2008.

Not surprisingly, auto enrollment appears to lead to significant difference in participation rates between Fidelity plans that do and don’t auto-enroll. According to the data, the average participation rate among plans with auto enrollment was 87% in the second quarter, compared with a participation rate of 52% among plans that didn’t auto-enroll new employees.

The impact of auto enrollment was especially significant among Millennials. For this age cohort, the participation rate within auto-enrolled plans was 87% at the end of 2017, more than double the participation rate for Millennials in plans that didn’t auto-enroll (41%).
The average savings rate among employees who were automatically enrolled has increased from 4% to 6.7% since 2008. And despite concerns over a “set it and forget it” mentality, Fidelity notes that over the past 10 years, nearly two-thirds (63%) of auto-enrolled employees have increased their savings rate.

“As retirement savings plans continue to evolve to meet the changing needs of today’s workforce, it’s clear the one feature that has really had a positive impact on the retirement landscape over the past decade is auto enrollment,” notes Kevin Barry, president of workplace investing at Fidelity Investments. “Auto enrollment positioned an entire generation of workers to build their retirement nest eggs.”

Average Default Rate Rises

Employers are also increasing their default savings rate in Fidelity’s 401(k) plans. According to the data, the average default savings rate rose to 3.9% in the second quarter after five straight quarters at 3.8%. A record 44% are now auto-enrolling at 4% or higher, up from 25% five years earlier. And among mid-sized companies with 25,000-50,000 employees, the average default savings rate increased to 4.6%.

In addition, the percentage of employers that default at 6% or more has more than doubled over the last decade. Now, nearly one in five (19%) utilize a default savings rate of 6% or higher.

Lower Loan Numbers

The percentage of employees in 401(k) plans record-kept by Fidelity with a plan loan dropped to its lowest level since 2009. Workers with an outstanding 401(k) loan fell to 20.5% in the second quarter of 2018, from 19.9% in the second quarter of 2009. Among Gen X workers, who historically have had the highest outstanding loan rate, their percentage dropped for the third straight quarter, to 26.4%.

New loan initiations in Fidelity plans also dropped for the second straight quarter, to 9.7% — the lowest mark since the first quarter of 2017.