BOSTON – Employee 401(k) accounts grew more than 4 percent in the third quarter as a rising stock market boosted investment returns, and contributions from workers and their employers increased.
Fidelity Investments, the nation's largest 401(k) administrator, said Thursday that the average balance of $75,900 at the end of the quarter was the highest since it began tracking the data in 2000.
Three months earlier, the average account balance among the 12 million accounts that Fidelity administers was $72,800.
The Standard & Poor's 500 stock index rose nearly 6 percent in the July to September period, boosting investment returns in 401(k)s. The gain helped investors recover from a nearly 3 percent market decline in the previous quarter.
Workers' 401(k)s are typically invested in bonds as well as stocks to help reduce volatility. A broad U.S. bond market index rose about 1 percent in the second quarter, substantially less than the stock market. So workers with large portions of their accounts invested in stocks enjoyed better performance than those with more in bonds.
Account contributions from employees' paycheck deductions also rose in the latest quarter, as did 401(k) contributions from employers, known as company matches.
Annual contributions from workers now average about $7,900, up more than 7 percent from the level five years ago. Company matches average $3,420, up 19 percent from the third quarter of 2007.
Many companies reduced or suspended their 401(k) matches to conserve cash during the recession that began in late 2007. But as the economy has gradually improved, many employers have restored those matches, and then some.
"When employers were cutting contributions, many told us that they felt badly about it, and that restoring them would be one of the first things they wanted to do once they saw signs of improvement," said Beth McHugh, vice president of market insights at Boston-based Fidelity.
The latest employer contribution numbers show that most companies "are back, and fully committed," she said.
Investment earnings and contributions can grow tax-free in an employer-sponsored 401(k) account, which is a key reason why they're a popular way to save for retirement.
The average employee contribution in Fidelity-administered 401(k) plans has remained steady at around 8 percent of annual pay for the past three years. In the latest quarter, 4.6 percent of participants increased the amount of their paycheck deductions for their 401(k), while just 2.8 percent decreased their deferral rate.
That's consistent with the trend since the financial crisis. Balances have grown a cumulative 64 percent since early 2009, when the stock market meltdown reduced the average balance to $46,200.
Yet workers who have stayed in the market long term have found it difficult to rely solely on investment gains to build up 401(k) savings. Stocks remain about 11 percent below their historic peak in October 2007.
Over the past 10 years, about two-thirds of annual increases in account balances have been due to workers' added contributions and company matches, with one-third the result of investment returns.