Increase in 401 (k) contribution rates, decrease in planned loans, return to normal

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The average annual savings rate of 401 (k) for plan participants hit a new high of 9.3 percent of workers’ earnings this year, according to new research.

It is encouraging to see continued improvement in retirement savings, ”said Kevin Barry, president of workplace investment at Fidelity Investments.

An analysis of the company, published in August, based on 23,600 corporate defined contribution plans administered by Fidelity as of June 30, 2021, found that workers are starting to feel more stable and a sense of normalcy compared to past Fidelity survey results. year.

These survey results reflected an improvement in sentiment among 401 (k) contributors:

  • The percentage of outstanding 401 (k) loans is at an all-time low. Less than 1 in 5 (17.5 percent) plan members had an outstanding out of 401 (k) loans in the second quarter of 2021, a record low percentage. “While some workers may still need to use their 401 (k) to solve financial problems, the long-term trend indicates a decline in loan use,” the report said.
  • Fewer people are making changes to asset allocation. Only 5.3 percent of 401 (k) contributors made changes to their asset allocation in the second quarter, the lowest percentage since the fourth quarter of 2019.

The study found that over the past year, more than 1 in 3 (38 percent) of 401 (k) savers have increased their savings rates, while 7 percent of workers have decreased their savings rates.

The average 401 (k) balance increased to $ 129,300 in the second quarter of this year, up 4 percent from the first quarter and 24 percent from a year ago, Fidelity said. Average account balances for 403 (b) plans, savings plans commonly used by charity groups and educational institutions, are lower than 401 (k) balances, but showed similar improvements over last year.

Average balances on retirement accounts

Q2 2021 Q1 2021 Q2 2020 Q2 2011
401 (k) plans USD 129,300 USD 123,900 USD 104,400 USD 73,000
403 (b) plans USD 113,300 USD 107,300 USD 91,100 USD 56,300

Source: Fidelity Pension Analysis Q2 2021.

Long term engagement pays off

The overall average balance for those who participated in the 401 (k) plan continuously for 10 years surpassed the $ 400,000 threshold for the first time, reaching $ 402,700 in the second quarter of 2021, Fidelity reports. Among female investors, the average 10-year continuous 401 (k) balance reached $ 324,700 in the second quarter.

Automatic features increase participation

Vanguard Investments

How America is saving 2021
The report, released in August, also shows an increase in participation rates and an increase in average account balances over previous years.

Results from Vanguard’s customer database of 1,700 employer-sponsored defined contribution plans, of which 9 out of 10 are 401 (k) or 403 (b) plans.

The chart below shows that over the past 15 years, more plan sponsors have added automatic features and the Roth option to their plans.

Plan design changes

Feature of the plan 2005 year 2010 r. 2015 Feb 2020
Auto enrollment plans 5% 27% 41% 54%
Plans offering Roth dues 42% 60% 74%
Plan-weighted participation rate * 74% 76% 81% 84%
Automatic registration, weighted by the number of participants ** 86% 92% 92%
Average account balance USD 67,856 USD 79,077 USD 96,288 USD 129,157

* Plan weighted participation rate is calculated to indicate the participation rate in the middle plan.
** Participant-weighted participation rate considers all employees as if they were working in the same plan.
A source:
How America is saving 2021, Vanguard. All data as of December 31, 2020

“The introduction of automated features, especially automated enrollment, has been one of the main reasons for the increase in member numbers,” said lead author Jeff Clarke, a member of the Vanguard Strategic Retirement Advisory Group of Advanced Analysts.

He noted that the enrollment rate was 92 percent in the auto-enrollment plans, compared to 62 percent in the voluntary enrollment plans.

“Automatic enrollment also translates into higher overall savings, which includes contributions from both employees and employers,” Clarke added. He noted that Vanguard’s analysis shows that in the past year:

  • Employees in tariff plans using automatic enrollment saved an average of 10.7% of their annual salary, compared to 6.8% for those who voluntarily enrolled.
  • Employees who have worked in auto-enrolled firms saved more than 50 percent more on retirement in 2020 than volunteer employees.

The cost of the automatic deposit increases

David Stinnett, Group Director of Strategic Retirement Consulting, Vanguard, added: “As impressive as the current statistics are – the progress we’ve seen – the fact is that if you’re going to implement automatic enrollment, you really need to do it in tandem with an automatic increase, “which raises the annual contribution rates of employees by one or two percent each year, but not more than 15 percent of the earnings of employees, unless the employees refuse the promotion.

“Members enrolled in an auto-enrollment plan save an average of 20-30 percent more after three years of the plan compared to enrolled in an auto-enrollment plan that does not automatically increase enrollment,” Stinnett said. “And since we believe that retirement success depends on how members reach the target savings rate of 12 to 15 percent in the shortest amount of time, the auto-increment feature – combined with auto-enrollment at least at the employer’s eligibility level – is a very powerful way to help participants achieve their goal. “

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