The coronavirus pandemic has taken a big hit on employees’ 401(k) savings.
Average 401(k) balances dropped 19% during the first quarter, according to analysis from financial-services firm Fidelity Investments, which handles more than 30 million retirement accounts. The average balance now sits at $91,000, down from a record high of $112,300 in last year’s fourth quarter.
“Given the unprecedented market volatility this quarter, it’s not surprising that account balances were impacted, although declines were less than the overall market decline,” says Kevin Barry, president of workplace investing at Fidelity Investments.
Despite a drastic fall in balances, contributions to accounts remained steady in the first quarter, Fidelity reports. The average 401(k) contribution rate remained steady at 8.9%, consistent with the end of last year, and 15% of 401(k) savers actually increased their contribution rate in the quarter. Meanwhile, employer contributions stayed at 4.7%.
“It was encouraging to see that many investors stayed the course and did not make drastic changes to their asset allocations, with some investors increasing contributions to their retirement accounts,” Barry says.
Experts say employers should encourage employees to keep putting money into their 401(k)s, despite volatility, in an effort to maintain financial wellbeing. “It’s always important to continue to contribute to your 401(k),” Edward Gottfried, group product manager for Betterment for Business, a provider that works with 500 employer clients, recently told HRE. “We think it’s good guidance for employers to tell [workers] that any savings they can do today will have an outsize benefit, and it’s important [employees] exercise their option to contribute to this employer plan.”