When Ned Johnson and his team talk 401(k)s, the media listens. Yesterday Fidelity [profile] released data on the state of participants in their giant 401(k) business, the largest in the country, and reporters were all over that news.

The news was picked up on by a plethora of publications, including: Associated Press columnist Mark Jewell, the Boston Business Journal, Business Insurance, the Cincinnati Business Courier, Financial Advisor, Financial Planning, InvestmentNews, Investor's Business Daily, InvestorPlace, MarketWatch, MarketWatch again, Pensions & Investments and Reuters. Here's the take of our sister publication, 401kWire.

The Boston Behemoth highlighted a record high average participant account balance of $75,900, as well as increases in participant contributions and employer contributions, and a shift away from equity funds and towards target date funds and other asset allocation products.

---

Company Press Release

Fidelity® Reports Highest-Ever Average 401(K) Balance

11/08/12

Employer contributions rising at faster rate than employees’ over past five years

BOSTON – Fidelity Investments®, the nation’s largest1 401(k) provider, today announced the average 401(k) balance reached $75,900 at the end of the third quarter, the highest it has been since the company began tracking the data more than 12 years ago2. The ending balance represents an increase of 4.2 percent from the end of the previous quarter and an 18.0 percent increase over one year prior when it was $64,3003.

Fidelity’s analysis of its 12 million 401(k) accounts in more than 20,200 corporate defined contribution plans shows that average annual employee contributions grew 7.3 percent over the past five years to $5,900 at the end of the third quarter, up from $5,500 ending the third quarter 2007. Meanwhile, average annual employer contributions – sometimes called a company match4 – rose to $3,420 at the end of the third quarter, up 19.0 percent since the third quarter 2007 when it was $2,880.

“It’s encouraging to see companies making a greater contribution to their employees’ 401(k) plans as we know a healthy employer match not only impacts employees’ retirement savings but also has a positive impact on their behavior, ultimately leading to better outcomes,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments. “And employers could do even more to help boost savings, such as increasing their default automatic enrollment rate and utilizing automatic annual increase programs that gradually raise an employee’s savings rate.”

Plan design features designed to increase savings and participation, such as auto-enrollment and auto-escalation, have had a positive impact over the past five years. However, employers could use them more effectively to drive even stronger outcomes. During the third quarter, new participants who were auto-enrolled had an average deferral rate of 3.7 percent. But new participants in plans not utilizing auto-enrollment had an average deferral rate of 8.4 percent. This may be attributed to plans auto-enrolling participants at too low of a default deferral rate, such as the common 3 percent. Fidelity suggests plans adopt a 6 percent auto-enrollment default rate with an automatic escalation of 1 percent annually, up to 10 percent.

Additional Findings from the Third Quarter Include:

More participants increasing savings than decreasing: For the 14th consecutive quarter, more participants increased their deferral rate5 than decreased it (4.6 percent vs. 2.8 percent). Fidelity recommends participants save an average of 10 to 15 percent of their annual salary to meet their income needs in retirement6. Each single percentage point of added savings can help participants meet that goal.

Contributions more balanced than years past: Participant contributions7 continue to be allocated to more balanced investments, such as target date funds (TDF). While new contributions into balanced options8 grew to 36 percent from 20 percent at the end of the third quarter 2007 (34 percent specifically into TDFs, up from 15 percent five years prior), new contributions into equities9 decreased to 46 percent from 62 percent. Contributions into conservative options10 remained relatively flat at 18 percent over the five-year period.

About Fidelity Investments
Fidelity Investments is one of the world’s largest providers of financial services, with assets under administration of $3.8 trillion, including managed assets of $1.7 trillion, as of September 30, 2012. Founded in 1946, the firm is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and many other financial products and services to more than 20 million individuals and institutions, as well as through 5,000 financial intermediary firms. For more information about Fidelity Investments, visit www.fidelity.com.

1) Cerulli Benchmarking Report, DC Markets Q3 2012 Survey.
2) In nominal dollars, not inflation adjusted.
3) Workplace defined contribution data is based on more than 20,200 plans and 12 million recordkept participants as of September 30, 2012, and excludes tax-exempt market plans. The analysis is based on qualified plans and includes data from Fidelity Advisor 401(k) Program.
4) The employer contribution figures quoted here consist of both employer match and profit sharing contributions, if any.
5) Average elective employee deferral rate.
6) Total annual savings, inclusive of any employer and employee contributions.
7) Contributions here are annual 12-month contributions.
8) Balanced options, sometimes called Blended, include TDFs, target risk and balanced funds.
9) Equity options include domestic equity, international equity, company stock, specialty and self-directed brokerage.
10) Conservative options include short term, stable value, fixed income and annuities.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Past performance is no guarantee of future results.

It is your responsibility to select and monitor your investments to make sure they continue to reflect your financial situation, risk tolerance, and time horizon. Most investment professionals suggest that you reexamine your investment strategy at least annually or when your situation changes. In addition, you may want to consult an investment adviser regarding your specific situation.

Fidelity Brokerage Services LLC, Member NYSE, SIPC 900 Salem Street, Smithfield, RI 02917

Fidelity Investments Institutional Services Company, Inc. 100 Salem St., Smithfield, RI 02917

632549.1.0
© 2012 FMR LLC. All rights reserved.

 

Edited by: Neil Anderson, Managing Editor


Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE