Fidelity Sees Continued Progress in 401(k) Plans Despite Market Volatility

With the recent market drop in Q4 2018, average 401(k) plan participant balances have decreased 8.4% in the last 12 months, from $104,300 in Q4 2017 to $95,600 in Q4 2018, according to Fidelity Investments.

The number of people with $1 million or more in their 401(k) dropped to 133,800 at the end of Q4.

However, the overall trend remains positive while the majority of employees continued to contribute to their plan. The average balance for employees continuously invested in a defined contribution (DC) plan for 15 years was $86,500 in Q4 2008, but was $355,500 in Q4 2018.

More than 98% of 401(k) savers continued to regularly contribute to their 401(k) in 2018. For just the fourth quarter, the percentage increased to more than 99%, which is the highest quarterly percentage Fidelity has recorded since Q1 2011. In terms of actual dollars contributed to retirement accounts, the average 401(k) employee deferral in 2018 was $6,850, which ties a record high. Only 3.4% of participants decreased their contributions, and 0.9% stopped contributions in Q4.

Despite the market volatility during Q4, most 401(k) investors did not react—only 5.6% made transfers. During the 2008/09 recession, on average, 1.5% of investors pulled out of equities all together compared to only 0.3% in 2018. As of Q4 2018, more than half (50.6%) of 401(k) savers are 100% invested in a target-date fund (TDF).

The percentage of workers with an outstanding loan from their 401(k) dropped to 20.3% in Q4 2018, the lowest level since Q2 2009. In addition, the percentage of workers initiating a new 401(k) loan dropped to 9.4% in 2018, the lowest 12-month percentage since Q2 2009.

Long-term trends

Fidelity’s “Building Futures” overview report says automatic enrollment (AE) proves to be a changing force as DC plan participation continues to increase. Average participation rates in AE plans was 78.9% in 2007 versus 57.8% for non-AE plans. In 2017, the average participation rate for AE plans was 87% versus 50.7% for non-AE plans.

Fidelity data shows 91% of employees who are auto-enrolled don’t opt out. And, plan participation among Millennials has increased by 82% over the last 10 years in part due to employers adopting auto-enrollment.

Average contribution amounts are also on the rise. At the end of 2008, the average total DC plan savings rate was 12%, according to Fidelity data. At the end of 2018, it was 13.1%. Auto-enrolled employees who have been invested in their DC plan for 10 years now have an average balance of $100,600.

With 98% of employers offering TDFs and 90% using them as the default investment option, employee asset allocation has improved greatly over the last 10 years, according to Fidelity. The percentage of employees holding either 100% or 0% in equity has dropped from 26.1% in 2008 to 10.2% in 2018. The percentage of employees with a stock allocation higher than suggested has dropped from 32.6% to 24.8%.

More than two-thirds (68%) of Millennials are 100% invested in a TDF, due in part to being auto-enrolled in their 401(k) and defaulted into the option.