401(k) balances at record level: Survey

The average 401(k) retirement plan balance has reached the highest level since Fidelity Investments began tracking account values in 1998.

The average account balance in the U.S. rose to $74,900 as of March 31, an increase of almost 12% from a year earlier, according to a report released by the mutual fund manager. Fidelity, the largest provider of 401(k)s, has 11 million participants in almost 16,500 employer-sponsored defined-contribution plans.

“This, for us, is an all-time high since Fidelity began tracking this figure back in 1998,” said Beth McHugh, vice president of market insights. “The other positive indicator that we saw was more participants’ increasing deferrals, versus decreasing them.”

About 10% of workers increased their savings rate during the first quarter, the most since Fidelity started reporting on that number in 2006, Ms. McHugh said. Participants saved an average 8.2% of their salaries, a rate unchanged since the first quarter of 2009, she said.

A 401(k) plan generally lets employees defer a portion of their wages to the account on a pretax basis. Contributions are limited to $16,500 for 2011, and those 50 or older may set aside an additional $5,500, according to the Internal Revenue Service.

VANGUARD ACCOUNTS

In a March report, The Vanguard Group Inc. said that its average 401(k) account balance rose to $79,077 at the end of 2010, the highest level since the company began tracking the data in 1999. Vanguard has about 3.5 million participants in defined-contribution retirement plans, with about $460 billion in assets under administration, according to spokeswoman Linda Wolohan.

Americans held $3.1 trillion in 401(k)s as of Dec. 31, according to the Investment Company Institute, which released a separate study.

The percentage of participants who stopped contributing to their defined-contribution plans declined last year; loan activity increased.

About 2.4% of workers halted contributions in 2010, compared with 3.4% in 2009, according to the ICI, which surveyed administrators of more than 23 million accounts. The share of those with loans outstanding rose to about 18% as of December, compared with about 17% at year-end 2009, the report said.

MARKET PERFORMANCE

As life expectancies increase and companies shift from traditional pensions to 401(k) retirement plans, worker confidence about having enough money in retirement has declined. More than a quarter of U.S. workers said they’re “not at all confident” about their ability to afford a comfortable retirement, the highest percentage in two decades, according to a March report by the Employee Benefit Research Institute.

Men have a life expectancy of 17 years at 65, based on government tables from the National Center for Health Statistics. For women, it’s 20 years.

About two-thirds of the increase in account balances in the first quarter was driven by market performance, while one-third was from participant contributions, Ms. McHugh said. The S&P 500 gained about 13% in the 12-month period through March.

“A lot of people will say $74,000 on average is not that great,” Ms. McHugh said. “If you look at those that are 10-year continuous participants, their average balance is about $191,000, and if they’re 55 years or older and a 10-year continuous participant, their average is about $233,800.”

Those figures show that contributing to a 401(k) early, at a “meaningful” rate, and continuing to save make a difference, she said.