Retirement Savings on the Rebound, Research Shows
The Principal Reports 401(k) Balances Nearly Double Since Recession
401(k) account balances have gone up 93 percent, nearly double since the economic downturn in 2009 according to the latest research from the Principal Financial Group®. While much of the increase reflects a rebounding market, the study found a significant increase in participation and savings rates since the market collapse, with account balances rising 17 percent in 2013 alone to an average of $54,000.
"The economic downturn may finally be in the rear view mirror, but the lessons learned from the crisis are hopefully influencing our savings habits as a nation moving forward," said Jerry Patterson, senior vice president of Retirement and Investor Services for The Principal®. "While we still have a lot of work to do to help Americans save at more adequate levels for retirement, these numbers are a positive sign that retirement savings are moving in the right direction."
The study, conducted by The Principal Knowledge Center, analyzed retirement plan participants savings and deferral changes among those enrolled in an employer 401(k) plan from 2008 to 2013.
Higher Savings, More Engagement
The study found a significant increase in the number of employees taking action to increase their contributions or deferrals into their employer's plan. The number of participants choosing to increase their contribution rates has increased almost 70 percent since 2009. The average employee contribution rate has increased 14 percent during the same time period.
"Employees are making great strides towards signing up to save more, but employees still succumb to inertia and often set and forget their savings," noted Patterson. "That's one of the reasons we're working with employers to design plans that use the power of inertia to help individuals continue to save at more adequate levels."
Patterson says changing plan design features to help make savings more automatic can capitalize on the upward trend and accelerate overall participation and savings rates. The Principal recommends several key automatic plan design features including:
- Automatic enrollment with at least 6 percent elective deferral.
- Automatic escalation of at least 1 percent per year up to 10 percent.
- Sweep all existing employees into the plan at least one time at the default deferral rate.
- Stretch the match by using a formula that incents employees to defer at higher levels in order to get the full employer match.
- Use an asset allocation choice as the qualified default investment alternative
About the Principal Financial Group
The Principal Financial Group® (The Principal®)2 is a global investment management leader offering retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $495.5 billion in assets under management3 and serves some 19.2 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit www.principal.com.
1 The study analyzed more than 1.8 million participants enrolled in an employer 401(k) plan with the Principal Financial Group from 2009 to 2013.
2 "The Principal Financial Group" and "The Principal" are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
3 As of March 31, 2014