In a study by Fidelity Investments of over eight million participants in over 10,000 401(k) plans serviced by Fidelity, the company found that the average account balance in 2003 rose by 25% to $55,000. The average approximate deferral rate was 7% for participants in the DC plans, with more than 10% of participants reaching the $12,000 maximum contribution level. This deferral was approximately the same as the year before.
However, the rate of participation in 401(k) plans declined slightly, from 68% in 2002 to 66% in 2003. The 2002 rate was also down 1.5% from the previous year (See Fidelity: 401(k) Participation Levels Drop to 68% in 2002 ).
Many participants are also content to put all their eggs in one basket. While the average 401(k) plan investment options increased to 18 in 2003, over one quarter of participants were satisfied to only utilize one of them. This segment of participants usually has a low account balance and often favors conservative investment choices, according to the study.
The study also states that life-cycle funds are becoming increasingly common. Seventy-four percent of the assets for participants between the ages of 30 and 39 were on average invested in equities, compared to only 44% for those between the ages of 65 and 69. The number of plans that offered Fidelity’s Freedom Funds – life-cycle funds that are targeted towards a specific age of retirement and become more conservative as they mature – was up 10% to 72% in 2003.
“Overall, the trends in (the Fidelity report) reinforce that 401(k)s are meeting their intended goal of helping workers save for retirement through the workplace,” said Steve Deschenes, executive vice president, Fidelity Institutional Retirement Services Company, in a press release. “Average account balances increased significantly in 2003 and workers continued their steady contribution levels, two important indicators that 401(k) plans remain the preferred way to save for retirement.”
A complete report on the 2003 statistics will be available online in the coming weeks at buildingfutures.fidelity.com .