(PlanAdviser) - The median defined contribution plan value among more than 3 million participants in 2022 was $23,818, the lowest value in more than a decade, according to Alight’s recently released 2023 Universe Benchmarks report.
The lower median value was due in part to new participants coming in with shorter service times and small balances last year, but plans across all timelines and sizes were hit by market declines, according to the report, with median returns for investors declining 14.7%. The tough year for savers led to overall drops in plan balances, contribution rates and other key measures that trended “in the wrong direction,” Alight wrote.
The average plan balance overall fell from $114,280 at the start of the year to $111,210 by year end, Alight found. Meanwhile, average plan participation slipped slightly to 83% from 84%, and the average contribution rate from participants dipped to 8.3% from 8.6% in 2021.
The retirement benefits provider still struck a positive, ‘silver lining’ message in the report despite the market hit to savers. Alight found that participants held the course overall, as loan usage remained historically low and only 19% of participants had an outstanding loan. As recently as a decade ago, the percentage was closer to 30%, according to Alight.
“On the surface, it might seem like 2022 was a lost year for workers in defined contribution plans,” Rob Austin, head of research at Alight Solutions, said in a statement. “Every day, Wall Street seemed to be punching plan balances down. Additionally, practically all other key measures of success—plan participation, average savings rates, loans and withdrawals—were trending in the wrong direction.”
But when digging deeper into the data and findings from the report, 2022 was not as bad as it may have seemed, according to the researcher.
“Trading activity was basically the same as other years. Most people did not make drastic, knee-jerk reactions to their investments,” Austin said. “Only 3% of people stopped contributing, and the number of people who increased contribution rates was more than twice the number who decreased their savings. In fact, much of the movement in the data can be attributed to an influx of newly eligible participants. Because of the Great Reshuffling, the percentage of DC-eligible workers with fewer than two years of service increased by 30% in 2022.”
In 401(k) plan participant research released by Fidelity Investment’s earlier this year, that positive message was reinforced by an upward trend in the final quarter of the year. When considering Fidelity’s full sample of 43 million savers, account balances were up in the fourth quarter of 2022, and participants continued to defer into retirement plans despite higher costs due to inflation and market uncertainty.
“It will be interesting to see if workers return to saving at higher rates,” Alight concluded in its report Lincolnshire, Illinoi-based firm’s report featured data from nearly 100 plans covering 3 million eligible participants.
By Natalie Lin
June 23, 2023
