Record-high levels? 401(k) employer contributions reach 4.8%

Americans appear to be refocusing on investing for their future after a few years of saving less and investing more conservatively in response to the pandemic and the subsequent economic challenges. Retirement savings account balances are up for the second quarter in a row due to improving market conditions and an increase in contributions from employers, according to Fidelity Investments’ Q1 2023 Retirement Trends analysis, which analyzes 44.5 million IRA, 401(k) and 403(b) retirement accounts.

The average 401(k) balance increased to $108,200, up 4% from the fourth quarter of 2022 and 5% from 5 years ago. The average 403(b) account balance increased to $97,900, up 6% from the previous quarter and up 16% from 5 years ago.

In addition, total 401(k) savings rates increased to 14%, up from 13.7% in Q4 2022 and near Fidelity’s suggested savings rate of 15%, including employee and employer contributions. Boomers still working are saving at the highest rate – 16.7% – and Gen Z has bumped its average savings rate to 10.5%, up from 10.2% last quarter. Furthermore, this generation’s average 401(k) account balance increased by 17% over last quarter, the highest of any age group. Gen Z account balances are up 34% from the first quarter last year, which makes them the generation with the most account growth year over year.

Related: Employees prioritize 401(k) plans with $1.8M retirement savings goal in mind

“It’s encouraging that today’s younger generations have more financial awareness than any generation before them,” said Joanna Rotenberg, president of Personal Investing. “This financial savvy can pay off in the long run, as making steady retirement contributions can help weather the inevitable financial downturns that will take place over time.”

Meanwhile, employer contributions, which include profit sharing and matching contributions, reached a record-high 4.8% during the quarter. More than eight in 10 workers received some type of employer 401(k) contribution in the first quarter, and 78% of workers contributed to their 401(k) at a level that allowed them to earn the full matching contribution offered by their employer.

On a downward trajectory were outstanding 401(k) loans and average loan amounts, according to the study. The percentage of participants with a loan outstanding dropped to an all-time low of 16.6% for the first quarter, down from 21% 5 years ago.

“We are encouraged to see positive gains for retirement savers, evidenced through rising account balances, improved savings rates, and a commitment by employers – including small business – to help employees prepare for the future,” said Kevin Barry, president of Workplace Investing and Fidelity Investments. “Americans have experienced some tumultuous years, but through Congress’ investment in retirement savings through the SECURE Act of 2019, as well as individuals’ continued commitment to save, we are optimistic for the future of retirement security.”

Kristen Beckman is a freelance writer based in Colorado. She previously was a writer and editor for ALM’s Retirement Advisor magazine and LifeHealthPro online channel.