Data & Research August 2, 2012

Gen Y Most Properly Allocated 401(k) Participants

A higher selection rate of target-date funds makes Gen Y 401(k) participants (those born between 1979 and 1991) the most properly allocated, Fidelity found.
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Fidelity’s second-quarter analysis of its 11.9 million 401(k) accounts shows that across all 401(k) participants, 45% are within +/- 10 percentage points of the Fidelity Freedom Fund equity rolldown schedule, a gauge the company uses to determine an age-based asset allocation that may be appropriate.  But for Gen Y participants, that number jumps to 67%.  

Many Gen Y participants have achieved diversification through the adoption of target-date funds, which are often the default option for plans with auto enrollment. Among plans that offer target-date funds as investment options, half (51%) of Gen Y participants have all their assets in a target-date fund, compared with 30% of participants of all ages in plans that offer target-date funds.    

In addition, Fidelity’s analysis found that in plans that offer Roth 401(k), usage of the savings option is greatest among Gen Y participants, with 8.8% contributing to them versus 5.8% among all active participants.  

“Trends we are seeing among our more than two million Gen Y participants are particularly exciting,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments. “They are starting off with better diversified portfolios than previous generations, which can have a positive impact over the long term.”

 

(Cont...)

Fidelity’s second-quarter analysis of its 401(k) accounts showed the number of employers offering a Roth 401(k) savings option rose to 35% from only 10% five years ago. More than half (55%) of Fidelity 401(k) participants are in plans that offer a Roth 401(k), up from 15% five years ago.  

In addition, employee and employer 401(k) contributions continued to increase in the second quarter, compared with the same period in recent years. The average contribution from employees rose to $1,660 during the second quarter, up $30 from the same period last year and up $150 from the same period in 2009.    

The average employer contribution climbed to $950 during the second quarter of this year, up $30 from the same period last year and up $90 from the same period in 2009.  The average 401(k) balance dropped slightly to $72,800 at the end of the second quarter, down 2.5% from the end of the first quarter.

 

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