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Data & Research May 25, 2023
Employer Contributions Hit Record High Among Fidelity Savers
The rate was driven by matching employees’ continued 401(k) deferral increases.
Reported by Alex Ortolani
Employer contributions hit a record high among Fidelity Investment participants in the first quarter of the year, according to data released Thursday.
Fidelity’s latest retirement savings assessment shows that employer contributions to 401(k) plans reached 4.8% in Q1, the highest rate since tracking began in 2009. The contributions were a combination of profit-sharing and matching contributions, and the increase was driven by employees socking away more money in workplace retirement plans, according to the Boston-based recordkeeper.
“Employees are gradually increasing their contribution rates, which means that the percentage employers contribute will also gradually increase, too,” says Michael Shamrell, vice president of thought leadership for Fidelity’s workplace investing.
The average employer contribution by dollar amount was $1,950, surpassing the previous high of $1,860 in Q1 2022, according to Fidelity’s report.
In addition to increasing deferral rates, the majority of participants also took advantage of the savings benefit, with 78% of Fidelity’s sample set contributing to their 401(k) at the level allowing them to get the full matching contribution from their employer. The record 4.8% employer contribution compares with a low of 4% in 2011, according to Shamrell. The rate fell to 4.4% in Q4 2020, then went back up to 4.6% in Q1 2021, showing that most people “continued to contribute to their retirement savings during the pandemic,” he says.
Total participant savings rates increased at the start of this year, improving to 14% of participant paychecks, up from 13.7% in Q4 2022. That is a return to the rate seen at the start of market volatility in Q1 2022, according to Fidelity.
The firm also reported that average retirement account balances increased for the second straight quarter. The average 401(k) balance increased to $108,200, up 4% from Q4 2022. For 403(b)s, the average account balance increased to $97,900, up 6% from last quarter and a 16% increase from five years ago. Individual retirement account balances also rose 5% to $109,000, according to the data.
“We are encouraged to see positive gains for retirement savers, evidenced through rising account balances, improved savings rates, and a commitment by employers – including small businesses – to help employees prepare for the future,” Kevin Barry, president of workplace investing at Fidelity, said in a statement. “Americans have experienced some tumultuous years, but through Congress’ investment in retirement savings through the Secure Act of 2019, as well as individuals’ continued commitment to save, we are optimistic for the future of retirement security.”
Fidelity’s data drew on the defined contribution activity of 44.5 million IRA, 401(k) and 403(b) retirement accounts and 24,800 corporate plans. The most common 401(k) employer match offers a 5% employee contribution, most often providing a dollar-for-dollar match for the first 3% and then 50 cents on the dollar for the next 2%, according to Shamrell.
