BOSTON – Fidelity Investments says that the number of people boosting their 401(k) contributions in the second quarter outnumbered those who lowered their contribution rates to their retirement accounts.
This reverses the trend of the prior three quarters when a greater percentage of participants lowered their contribution rates.
“More workers are increasing their savings levels in their 401(k) plans as Americans across the country recognize the need to save more,” said Scott B. David, president of workplace investing at Fidelity Investments. “The downturn has really reinforced the importance of saving consistently and having a diversified portfolio.”
Fidelity said the average account balance rose 13.5 percent in the second quarter from the end of the first quarter 2009 to $53,900, primarily driven by increases in the equity markets as well as participant and employer contributions.
At the same time, the Boston-based mutual fund giant said that participants have turned to more conservative investments over the past year, with smaller portions of contributions going into equities.
About 68 percent of 401(k) contribution dollars in the first half of 2009 went to equities, Fidelity said. That number has hovered around 75 percent for the past few years and topped out at more than 80 percent in 2000.
More specifically, in the second quarter, 8 percent of contribution dollars went to company stock, 42 percent was invested in domestic and international equity options, 24 percent went to blended or lifecycle options, and 24 percent was allocated to conservative options such as short-term, stable value and fixed-income investments.
The percentage of active participants who decided to stop contributing during the second quarter was 1.3 percent, down from 2.2 percent in the past two quarters and in line with the longer-term historical trend of about 1 percent.
Fidelity said that, while the portion of workers in their 20s who participate in a workplace savings plan such as a 401(k) or 403(b) has increased in recent years with the help of auto enrollment, the majority still do not participate. Less than half (44 percent) of eligible workers in their 20s contribute to their workplace plans today.
“A savings gap in the early years has a much more damaging impact on long-term savings levels than a gap in the later years, so it is critical that workers get started as early as they can,” said David.
When workers reach their 30s and 40s, savings behavior improves, with participation rates of more than 65 percent and a higher average elective deferral rate of 7.7 percent of salary. However, the frequency and the prevalence of taking out a loan against workplace savings increases significantly as many begin a different life stage with competing financial priorities.
Fidelity Investments is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans and a leading online brokerage firm. Fidelity has about 44,000 employees, about 3,000 of whom work on the company’s 500-acre campus in Smithfield. Additional information is available at www.fidelity.com.
