The average 401(k) balance fell by 19% during the first quarter, according to data released Friday by Fidelity Investments.
As of the end of March, 401(k) accounts in Fidelity’s record-keeping business held an average of $91,400, down from what was a record of $112,300 at the end of December, the firm stated.
Meanwhile, IRA balances fell from an average of $115,400 to $98,900 during that time, according to Fidelity. Tax-exempt market plans, including 403(b)s, had average balances of $75,700, down 19% from the fourth quarter of 2019.
Despite the negative returns in the stock market and historic volatility, people continued to save, and many either increased their 401(k) contribution levels or opened up their first individual retirement accounts, the company stated.
Some savers did reduce their 401(k) contribution rates, but that was offset by increases made by 15% of participants. The average contribution rate was unchanged during the quarter, at 8.9%, according to Fidelity.
Many employers have also reduced or eliminated their 401(k) matching contributions, but that did not pull down the average employer contribution rate during the quarter. It actually increased from 4.6% to 4.7%, the record keeper noted.
More than half of defined-contribution plan sponsors have either reduced or eliminated their contributions or are considering doing so, according to a survey of record keepers and plan sponsors published this week by the Spark Institute and the Defined Contribution Institutional Investment Association.
During the first quarter, contributions to IRAs went up by 10%, on average, compared with the first quarter of 2019, according to Fidelity. During that time frame, account openings increased by 36%, with more than 400,000 new IRAs starting during the first quarter of 2020, the company said.
“A growing number of millennial investors are utilizing IRAs as a retirement savings vehicle, with contributions among millennials increasing 41% over the last year, while the amount contributed by millennials increased 64%,” the firm wrote.
While more than a quarter of investors hinted at plans to sell investments or cash out of their retirement accounts, few might actually be taking such action, according to a survey by Empower Retirement of 2,000 people in March. According to that firm, more than 60% of people said they had plans to save more money.
Telling is that only 0.7% of participants in the company’s record-keeping business made changes to their investments, according to data from Empower.
At Fidelity, more than 7% of participants did make changes to their 401(k) asset allocation in the first quarter, up from just over 5% during the prior quarter, according to that firm.
Meanwhile, the effect of the recently passed CARES Act might have yet to materialize. Provisions in the new law allow participants affected by COVID-19 to make early withdrawals of as much as $100,000, without the usual 10% penalty. Numerous plan providers have also waived fees associated with those withdrawals, as well as hardship distributions and loan applications.
Less than 1.5% of participants in Fidelity’s plan business took hardship withdrawals during the first quarter, the company wrote.
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