401(k) account balances surged in 2023, says T. Rowe Price

The data show the driving influence of auto-enrollment, the spread of Roth contributions, and the stickiness of target-date products in 401(k)s.

A new report from T. Rowe Price, a leading player in the retirement plan services business, offers new insight into the trends and patterns that defined the 401(k) plan space in 2023.

In its latest annual study on 401(k) plan design and participant behavior, the company noted a considerable increase in the average 401(k) account balance – which grew 14 percent to hit $115,000 – largely thanks to a buoyant financial market.

T. Rowe Price’s report draws on the large-market, full-service universe of its retirement business, which includes 667 plans – including both 401(k) and 457 plans – and around 2 million participants.

According to the firm, last year’s $115,000 represents the second highest average account balance it has observed over the past decade, only slightly below the 2021 peak of $124,000. At the forefront of last year’s surge was the 20- to 29-year-old age cohort of plan participants, who saw their balances grow by an impressive 27 percent.

Slightly blemishing the robust findings on retirement account balances, the survey showed that overall participation in 401(k) plans saw a slight dip year on year, from 66 percent in 2022 to 63 percent in 2023.

Data on participation rates showed a difference of night and day between opt-out retirement plans and plans that don’t automatically enroll employees. According to T. Rowe Price’s report, participation was significantly higher in plans that offer auto-enrollment features, at 83 percent, in stark contrast to the 36 percent participation rate in plans without auto-enrollment.

Francisco Negrón, head of retirement plan services at T. Rowe Price, highlighted the importance of default features like auto-enrollment and auto-escalation in retirement plan design.

“We’ve seen first-hand how simple 401(k) plan features like auto-solutions can significantly drive positive savings behavior,” he said in a statement, highlighting his company’s commitment to helping advisors and plan sponsors set up plans to “instill financial confidence” and “[promote] better retirement outcomes” among US workers.

The report detailed several other key trends and statistics. Notably, Roth contribution plans reached a new high in 2023, with 93 percent adoption among plans and 14 percent of participants electing for Roth contributions.

The average employee deferral rate remained flat at 8.4 percent, indicating stable savings habits among participants.

T. Rowe Price’s study also highlighted the prevalence of target-date products, with those fully investing in these dynamic asset-allocation solutions being 27 times less likely to switch to other investment products.

In addition, there was a notable decrease in the distributions taken by participants aged 72 and older – a 12.9 percent drop compared to the previous year – likely influenced by legislative changes to SECURE 2.0 that pushed back the starting age for required minimum distributions to 73.

The data also point to mounting financial stress among American workers, with hardship withdrawals going up across all age cohorts. That trend was led by participants in their 50s, who increased both their average withdrawal amount and volume of withdrawals by 22 percent.