Thanks to automatic enrollment, 401(k) participation rates continue to improve, and average participant deferral rates also showed a slight increase according to Alight’s 2024 Universe Benchmarks Report, released this week.
“While there are many encouraging signs in defined contribution plans, there is still room for improvement through plan enhancement and participant education.”
Alight’s Rob Austin
The report provides a comprehensive look at the savings and investment behaviors of participants in defined contribution (DC) plans. Drawing on data from almost 100 plans with 3 million eligible participants, this year’s report sheds light on key trends in plan participation, savings rates, plan balances and more, offering actionable insights for employers and participants alike.
“While there are many encouraging signs in defined contribution plans, there is still room for improvement through plan enhancement and participant education,” said Rob Austin, Head of Research at Alight. “Participants should be aware of the benefits of saving more, diversifying their investments, and avoiding loans and withdrawals that can reduce their retirement income.”
While the full report is available for purchase, Alight did share a snapshot of core findings with 401(k) Specialist, including the following five:
1. Auto-enrollment continues to boost participation rates
The average 401(k) participation rate increased slightly from 83% in 2022 to 84% in 2023. This means that more workers are taking advantage of the opportunity to save for retirement through their employer-sponsored plans. Automatic enrollment was credited as the main reason for the increase. Among plans with auto-enrollment, the average participation rate is 90%. Plans without auto-enrollment have an average participation rate of just 51%.
2. Savings rate increases marginally
The average savings rate, which measures the percentage of salary that participants contribute to their plans, increased marginally from 8.3% in 2022 to 8.4% in 2023. This shows that participants are saving more—albeit only slightly—of their income for retirement. Almost one-third (32%) of people increased their contribution rate in 2023 compared to only 9% who decreased it.
3. Average plan balances spike 18%
The average plan balance grew significantly from $111,210 in 2022 to $131,600 in 2023, a growth of 18.3%. The median plan balance, which represents the midpoint of the distribution of balances, also increased from $23,818 in 2022 to $29,781 in 2023, a growth of 25.0%. Alight’s 2024 Universe Benchmarks Report notes these increases are largely driven by the strong performance of the stock market and the compounding effect of reinvested earnings.
4. Roth contributions rise
More participants are choosing to make contributions on a Roth basis or an after-tax basis, which offer different tax advantages than traditional pre-tax contributions. This year’s report found the percentage of participants who made Roth contributions increased from 11.9% in 2022 to 12.5% in 2023, while the percentage of participants who made after-tax contributions increased from 4.2% in 2022 to 4.5% in 2023.
5. Plan loans and withdrawals also increase
The report notes that higher balances often translates to more leakage and there was an uptick in the percentage of people taking loans or withdrawals from their plans last year. The percentage of participants who initiated a loan in 2023 increased from 8.3% in 2022 to 9.2% in 2023, while the overall percentage of participants with a loan outstanding increased from 18.5% in 2022 to 19.2% in 2023. The percentage of participants who took a withdrawal in 2023 increased from 5.3% in 2022 to 6.4% in 2023.
SEE ALSO:
• How America Saves? At a Record Pace in 401(k), Vanguard Finds
• 401(k) Account Balances Reach Record Levels
• DC Savings and Investing Collectively Dropped in 2022
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
