401(k) savings plans are doing well, but they could do better

By Steve Dinnen

So how are we doing with our workplace 401(k) savings plans? Well, better, according to Vanguard, the mammoth mutual fund and 401(k) plan operator.

Average account balances rose by 19% in 2023, which Vanguard credited primarily to the stock and bond markets. The Dow Jones Industrial Average rose 13.7% in 2023, while the S&P 500 Index climbed 24%. Bond market performance was positive, too, but in single digits.

The average account balance at the end of 2023 was $134,128, and the median account balance rose 29%. Among plan participants, 15% increased their payroll deferral percentage. And 28% had their deferrals increased by the annual automatic escalation, which many (but not all) employers offer. Vanguard says the percentage increases on deferrals are the best its analysts have seen in all the years the company has published its How America Saves report.

Even so, there is still room for improvement, for plan participants and sponsors alike. Not all plans offer automatic enrollment. They should. And for plans with an auto-enroll option, Vanguard said sponsors should monitor them in order to see how fast participants step into the 12%-15% deferral rate. The average deferral rate is around 11.3%, which is a combination of what the employee sets aside and what the employer matches.

Vanguard said sponsors could offer cost-efficient, high-quality advice and a platform that provides guidance on financial well-being, which basically would coax workers into setting aside more retirement dollars over competing financial priorities, such as student loans, home mortgages, health care expenses and credit card debt.

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