Steady Contributions, Market Performance Drive Q2 Double-Digit Rebound

While numerous factors were in play during the second quarter, average retirement account balances experienced double-digit growth powered largely by positive stock market performance and steady investor behavior.  

 

Fidelity Investments’ quarterly analysis of retirement savings trends finds that the average 401(k) balance increased to $104,400 in Q2, a 14% increase from Q1. Compared with a year ago, average balances are now down only 2%. These findings are based on 23,000 corporate DC plans and 18.6 million participants as of June 30, 2020. Meanwhile, the average 403(b) account balance increased to $91,100, up 17% from last quarter and 3% from a year ago. 

With average balances increasing this quarter, consider also that those DC plan participants who have been saving over the long term (15 years) have saved an average of $407,500. And if you’re a Millennial who has continuously invested in a DC plan for 15 years, you would have an average balance of $196,500 in Q2 2020.

 

“While the stock market’s performance in Q2 helped drive workplace retirement account balances higher, employer contributions also played a key role,” notes Kevin Barry, Fidelity Investments’ President of Workplace Investing. “Nearly 90% of employers continued to offer matching contributions to their employees over the last quarter, despite the unsteady business landscape.” 

 

 

Fidelity’s data shows that 76% of workers received an employer contribution in Q2, with the average employer contribution reaching $1,080. Over the last four quarters, a record 88% of 401(k) savers received an employer contribution, with employers contributing an average of $4,030 per account over the last 12 months. 

 

Regarding organizations that took steps during the quarter to address the economic downturn, Fidelity found that only 11% of employers suspended their 401(k) company match in Q2. Of those employers which suspended their match, 32% indicated they plan to reinstate it in the next year and 48% plan to reinstate as soon as financially possible. Only 6% of employers indicated they currently have no plans to reinstate their match. 

 

And despite the market volatility, retirement savers apparently did not hit the brakes on contributions. Nearly 9 out of 10 individuals (88%) contributed to their 401(k) in Q2—which was a very minor drop from the previous quarter’s record high of 89% but still in the top five averages since 2002, Fidelity notes. Moreover, fewer than 1% (0.8%) of 401(k) savers stopped saving in the quarter, while 9% increased their contribution rate. 

 

Among 403(b) accounts, 96% of individuals either maintained or increased their contribution rate in Q2. For 403(b) accounts in the health care industry, including workers at hospitals and health networks, 96% of individuals maintained or increased their contribution rate in Q2. 

 

 

Fidelity notes that by early April, 98% of its workplace clients had adopted the CARES Act Coronavirus-related distribution provisions. 

 

As of the end of Q2, 711,000 individuals had taken a CARES Act distribution from their retirement account, representing 3% of eligible employees on the firm’s workplace savings platform. The overall average withdrawal amount was $12,100, while the median withdrawal amount was $4,800. 

 

With most employers choosing to adopt the CARES Act distribution provisions, many participants opted for this instead of a traditional loan, resulting in loan usage trending down during Q2, Fidelity observes. Noting that it will continue to monitor this trend, the firm’s data shows that only 1.6% of DC plan participants initiated a new loan in Q2, with an average loan amount of $12,600.

 

Fidelity also notes that individuals continued to seek out information on the CARES Act and COVID-19 issues, as the firm’s COVID-19 website was viewed more than 1.3 million times in the quarter.