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Employer Matching Contributions Reach Record Highs

Employer Matching Contributions Reach Record Highs

Employer matching contributions and employee savings rates in America’s retirement plans have reached record highs.  In many ways, employer matching contributions become the fuel that drives the self-funded retirement system in America!

According to Fidelity Investments’ latest retirement analysis from Q1 2019, cited by FoxBusiness. Fidelity’s report shows that employers contributed an average of 4.7% toward workers’ 401(k) plans in the first quarter of 2019 — a generous employer matching contribution, indeed. In fact, it’s a record high for employer matching contributions going into retirement plans. In addition, employer matching contributions plus employee contributions reached another all-time high of 13.5% in Q1 2019, according to Fidelity. That comes very close to the 15% that most financial experts agree that workers should be saving toward to their futures.

Also, 403(b) contribution levels also reached record highs, Fidelity reported. The average employer matching contribution to a 403(b) in Q1 was $1,430, while the average employee contribution reached $1,700.  The 403(b) participant accounts at Fidelity also climbed to reached record levels.  The number of individuals with a Fidelity 403(b) account rose to 6.1 million at the end of Q1 2019, an increase of nearly half a million accounts (456,000) over the past year, and a 43% hike over the past five years, Fidelity said.

No doubt the rise in employer matching contributions, along with increasing employee savings rates, is contributing to the number of so-called “401(k) millionaires,” which is also on the rise, according to the Fidelity report. The number of 401(k) accounts with a $1 million balance rose to 180,000 in Q1 2019 from 133,800 at the end of the fourth quarter of 2018. In the first quarter of 2019, the average retirement account balance reached $103,700 — an $8,100 increase from the previous quarter. However, as FoxBusiness aptly pointed out, the retirement plan account balances vary greatly by age.

The fact that employer matching contributions and employee savings rates are on-the-rise is very encouraging. So, too, is the fact that the retirement plan account balances are increasing. However, we must remember, we are in the midst of a 10-year bull market in the stock market. How long the market uptick will continue is anyone’s guess. Stocks plummeted in December 2018, and since then, have made a remarkable comeback, despite some near-term volatility.

However, retirement plan balances will inevitably see a decline if the stock market experiences a downtrend again. For retirement plan participants, it’s a matter of if, not when, that will occur. Nonetheless, in the event of a market downturn, it has historically been beneficial for employers to encourage workers to stay the course and remain focused on their long-term investment strategies.

Employers who offer matching contributions in their retirement plans should review how much they’re currently putting in, and if necessary and possible, bring the match in line with employer matching contribution levels of other employers. A plan benchmarking exercise that compares your plan to peers can help you to determine if your employer matching contributions are competitive with other plans of similar size in your company’s industry.

In addition, if your plan offers an employer matching contribution, encourage employees to contribute at least enough into the plan to take advantage of the match. This enables employees to save more for retirement and at the same time, receive “free money” for their future that they would otherwise be leaving “on the table.”  As the data from Fidelity’s Q1 2019 report show, a generous employer matching contribution can go a long way toward improving retirement readiness.

Steff Chalk

Steff Chalk

Managing Editor at 401kTV
Steff C. Chalk is Executive Director of The Retirement Advisor University, a collaboration with UCLA Anderson School of Management Executive Education. Steff also serves as Executive Director of The Plan Sponsor University and is current faculty of The Retirement Adviser University.
Steff Chalk
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