Repeat Record Balances Highlight Need to Improve Coverage

Participant balances in employer-sponsored retirement plans have never been higher, yet millions of Americans lack access to tax-advantaged savings opportunities in their workplace.

The latest crop of client data published by Fidelity Investments shows defined contribution (DC) retirement account balances have reached a new record for the second consecutive quarter.

According to Fidelity, the new record was reached because of consistent savings among workers and steady contributions from employers, buoyed by a positive stock market performance. Despite many U.S. workers still feeling the impact of the coronavirus pandemic, loans and withdrawals from retirement savings accounts trended downward during the first quarter of this year.

Fidelity’s data shows the average 401(k) balance increased to $123,900 at the end of the first quarter, marking a 2% increase from the end of 2020 and a 36% jump from a year ago. The average 403(b) account balance increased to a record $107,300, representing an increase of 1% from last quarter and a 42% boost over Q1 2020.

“While the stock market’s recent performance provided a boost to retirement savings balances, individuals can’t control how the market performs from quarter to quarter or year to year. What they can control is establishing and sticking to consistent, positive savings behaviors,” says Kevin Barry, president of workplace investing at Fidelity Investments. “This behavior is important to putting investors on the right track to reach their long-term retirement savings goals.”

Barry credits plan sponsors and participants for showing strong discipline during an incredibly challenging year. Indeed, despite many workers continuing to face financial challenges related to the pandemic, the percentage of workers with an outstanding 401(k) loan dropped to 17.5%, down from 19.7% in Q1 2020. According to Fidelity, only 1.6% of 401(k) savers initiated a new loan in the first quarter, which was flat from Q4 2020 and down from 2.4% a year ago.

“The first quarter of last year was a difficult time for many as the effects of the pandemic started to impact the global business landscape,” Barry says. “Plan design and employer contributions continue to help workers with their savings efforts.”

Data shared this week by Principal underscores the role employers are playing in lifting their workers’ financial futures. Across the firm’s recordkeeping clients, 1.8% of all plans submitted plan design amendments during the first quarter of this year. Of those, 40% have reinstated their matching contributions, and there was nearly three times more match return activity during Q1 2021 compared with Q1 2020.

According to Principal, requests for hardship or disaster withdrawals were down 30%, while requests for loans were down nearly 25% quarter-on-quarter. The reduction in withdrawals among the firm’s sample set is particularly positive when considering that coronavirus-related distribution (CRD) relief was halted at the end of 2020. Individual 401(k) saving deferral decreases were down 60%, and deferral saving starts were up more than 35%.

Fidelity’s analysis finds employers are taking key steps to help their workers save more for retirement. In addition to matching contributions to their employees’ accounts, employers are designing their workplace savings plans with features that can improve workers’ savings rates. Fidelity’s data shows the average 401(k) employer contribution rate was 4.6%, and the average amount contributed to employees’ 401(k)s was $1,720 during the quarter. Among 403(b) accounts, the average employer contribution was 4.1% and the average amount was $3,000. Overall, companies made matching 401(k) contributions to 83% of employees in the quarter.

Fidelity says more than a third (36.9%) of companies now automatically enroll employees into their 401(k) plan, which can help put employees on the path to savings. Among large organizations with more than 50,000 employees, the percentage that automatically enroll employees increases to 62%. Of the employees automatically enrolled in their 401(k) plan, more than 90% stay enrolled in their plan.

“Employers recognize how the design of their workplace savings plan can have a positive impact on retirement savings efforts,” Barry adds. “Recently proposed legislation, such as SECURE Act 2.0, could provide additional support for employers as they help their employees save for retirement.”

Some context for these numbers comes from the Georgetown University Center for Retirement Initiatives, which earlier this year published a report in collaboration with the Berggruen Institute and ESI Consultant Solutions, “What Are the Potential Benefits of Universal Access to Retirement Savings?

The center says there are an estimated 57 million private sector workers, or 46% of the population working in the private sector, who do not have access to a retirement plan through their workplace. This is particularly true for workers at small businesses and among lower-income workers, younger workers, minority groups and women.

As Barry noted, the SECURE Act 2.0 could help expand retirement plan coverage, for example by incentivizing startup companies to join pooled employer plans (PEPs), but even that bill—recently passed by the House Ways and Means Committee—is not a panacea for getting all U.S. workers saving in the DC plan system.