Fidelity 401(k) Plan Balances Rise to New High in Q1

Despite economic fallout from the pandemic, defined contribution plan balances remain strong.

The average 401(k) retirement account balance among Fidelity Investment clients rose 2% in the first quarter of 2021 from the previous quarter, and 36% from the year-ago period to a new high of $123,900, according to the firm’s quarterly analysis of 401(k) plans.  

“Data remained relatively steady, with participants continuing to improve their savings behaviors and increase their balances, while workers slightly reduced their loans and withdrawals,” Fidelity said in its report.

The report also found that among those who have been saving for at least 15 years, the average balance rose to $490,100, from $232,200 five years earlier, and $99,500 in 2011.

The company also said that due to 98% of employers offering target-date funds (TDFs), and 92% using them as the default investment option, “employee diversification has improved greatly over the last 10 years.”

 It also noted that Baby Boomers are the most likely to invest too aggressively, putting them at risk as they near retirement, while 69% of Millennials are 100% invested in a target-date fund, thanks in large part to automatic enrollment.

The analysis also found that large plans, defined as those with at least $500 million in defined contribution (DC) assets, are offering participants significantly fewer investment options than they did a decade ago. According to Fidelity, those plans now offer an average of 15.4 investment options, down from an average of 25.5 investment options in 2011.

Surprisingly, the analysis found that despite many workers still facing financial challenges related to the COVID-19 pandemic, loans and withdrawals declined slightly during the first quarter of the year.

The percentage of workers with an outstanding 401(k) loan dropped to 17.5% down from 19.7% during the first quarter last year, and the percentage of workers who made a withdrawal from their 401(k), including hardship withdrawals, fell sharply too during the quarter to 2.4%, down from 6.1% in the fourth quarter of last year, and 3% during the year-ago quarter.

The report also found that the popularity of Roth 401(k)s has risen sharply in the past five years, during which time the amount of plans offering the Roth option has increased 32%. The option is most popular among younger investors, as Fidelity said Millennials are the most likely to contribute to a Roth 401(k), increasing to 16% from 10% in the last 10 years.

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