Earlier this year we learned that American workers continue to have a highly-favorable opinion of their tax-advantaged 401(k) plans, in part because the routine contributions can lead to substantial growth in one’s retirement nest egg. This is again supported by the latest quarterly update from Fidelity Investments on the plan performance of consistent participants. Specifically, the average account balance for workers who have been in their company’s 401(k) plan for at least fifteen consecutive years ended Q2 2020 at $407,500, a 392 percent increase since the end of the “Great Recession.”
More generally the average account balance among all 401(k) participants regardless of plan tenure finished the second quarter at $104,400, a 14 percent jump from Q1 2020 and 73 percent higher compared to a decade earlier. The latter is helped not just by the long-term resiliency of the stock market but also years of steady plan contributions, and encouragingly average deferral rates have held up very well during the COVID-19 crisis. There were of course some cuts that occurred during the peak of the Q1 market tumult, but by the end of Q2 deferrals had largely stabilized. Some contribution rates even increased last quarter relative to pre-pandemic levels, which Fidelity attributed largely to auto-escalation. Additional evidence of the usefulness of incorporating automatic plan features can be seen in the nearly 90 percent of employees who were auto-enrolled into their plan and did not opt out of participating even as market volatility spiked. Further, Millennials have probably benefited the most from the automatic enrollment push, as 401(k) participation among Gen-Y workers has surged by 55 percent over the last ten years.
Another positive side effect of seeing deferral rates hold up well is that it means many workers were able to continue taking advantage of employer-provided matching contributions. In fact, more than three-quarters of 401(k) participants received an employer contribution in Q2, the average total savings rate (employee contributions + company match) climbed to 13.4 percent, and over the past year employers have contributed an average of $4,030 per account. The Fidelity researchers added that “While organizations across the country were taking steps to address the financial impact of the economic downturn, only 11 percent of employers suspended their 401(k) company match in Q2. Of the 11 percent of employers that suspended their company match, 32 percent indicated they plan to reinstate their match in the next year and 48 percent plan to reinstate as soon as financially possible.”
Sources: Fidelity Investments, IBD