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Study Finds Q1 Participant Stability Amid COVID-19 Crisis

Practice Management
Despite the maelstrom that quickly beset the economy in the end of the first quarter of 2020, there was remarkable stability concerning retirement savings accounts, according to a new report.
 
The good news comes in Fidelity’s quarterly analysis of retirement savings trends, account balances, contributions and savings behavior, among more than 30 million 401(k)s, IRAs and 403(b)s. 

Balances Down
 
Retirement accounts were affected by the stock market’s volatility in the latter part of the first quarter, Fidelity says. It reports that average balances fell for 401(k), 403(b)s and IRAs.
 
 
Account Type Average Balance, Q1 2020 Average Balance, Q4 2019 Change from Q4 to Q1
401(k) $91,400 $112,300 -19%
403(b)s $75,700 $93,100 -19%
IRAs $98,900 $115,400 -14%
 
 
Drawing From Accounts
 
The results in the first quarter were also mixed regarding funds taken from retirement accounts, Fidelity says: hardship withdrawals were up slightly, but the number of new loans from 401(k)s fell.
 
Just 1.4% of individuals took a hardship withdrawal, just 0.5 percentage points higher than the percentage who did so in the same period one year before. The percentage who took a 401(k) loan in the first quarter stood at 2.3%, the same percentage as the first quarter of 2019 and 0.3 percentage points lower than in the fourth quarter of 2019.
 
Allocation Stability
 
Even amid the volatility that hurt balances, a strong majority of retirement account holders held firm on the way their retirement funds were allocated, Fidelity says. Highlights of those statistics include:
 
 
Account Type % of Individuals Changing Allocations in Q4 2019 % of Individuals Changing Allocations in Q1 2020 Change, Q4 to Q1
401(k)s 5.2% 7.3% +2.1 percentage points
403(b)s 4.1% 5.2% +1.1 percentage points 
 
 
Contribution Increases
 
Not only did retirement accounts largely hold steady, some contributions even increased in the first quarter, according to Fidelity. Highlights of the results include:
 
 
 
Account Type Average Employee Contribution Rate, Q4 2019 Average Employee Contribution Rate, Q1 2020 Change, Q4 to Q1 Average Employer Contribution Rate, Q4 2019 Average Employer Contribution Rate, Q1 2020 Change, Q4 to Q1
401(k)s 4.7% 4.6% +0.1 percentage point 8.9% 8.9% --
403(b)s 6.9% 5.6% +1.3 percentage points -- -- --
 
 
Fidelity adds that the average amount contributed to an IRA in the first quarter was $3,330, 10% higher than the average contribution during the same period in 2019.
 
Growth in IRAs
 
The news was even better concerning IRAs, Fidelity says; they report that 407,000 new IRAs were opened in the first quarter. That figure, which they characterized as a “record level,” was 36% higher than the number opened in the first quarter of 2019. They also report strong growth among millennials, with their contributions growing 41% and the amounts they contributed increasing by 64%.
 
“Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline,” said Kevin Barry, president of Workplace Investing at Fidelity Investments in a press release, adding, “It was encouraging to see that many investors stayed the course and did not make drastic changes to their asset allocations, with some investors increasing contributions to their retirement accounts.”