The average participation rate in employer-sponsored retirement plans is 78.3 percent, up marginally from last year, but well above the 69.8 percent rate 10 years ago, according to Aon Hewitt's 2014 Universe Benchmark Survey.
The recently released report says the increase has been clearly aided by automatic enrollment.
Plans with automatic enrollment saw their average participation rate grow to 84.6 percent last year, up from 81.4 percent the previous year.
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But participation rates dropped in those plans without automatic enrollment. Only 62.4 percent of employees participate in plans when their employer doesn't auto-enroll them.
The average savings rate held steady at 7.5 percent, which is notably lower than the suggested 15 percent in a recent study from Boston College's Center for Retirement Research.
The average plan balance at the end of last year was $91,060, up from $81,240 in 2012 and $74,380 at the end of 2011.
Last year's gains resulted from above average returns. The typical plan grew 17.7 percent last year. The median return over the past three years was 9.4 percent, and 13.3 percent over the past five years.
While the strong gains are welcome news, the study points out that the average 401(k) account balance is 1.2 times average salary. According to Aon, workers will need retirement assets to average 11 times their salary in order to maintain their standard of living after they leave the workforce.
Target-date funds continue to grow in popularity, and, along with surging equity markets, may account for why enrollees' allocations in equities has reached an all-time high. More than 70 percent of assets are in stocks, up from 68 percent last year and 59 percent in 2008, when 401(k) investors fled stocks during the financial crisis.
The average allocation to company stock is 12.9 percent, down modestly from the previous year; 40 percent of plan sponsors offer company stock as an investment option.
The survey suggests auto-enrollment as key to increasing participation rates, but warns against setting default contributions too low. Savings rates are actually higher in plans without auto-enrollment (7.9 percent) than in auto-enroll plans (6.6 percent), due to sponsors setting contribution rates too low.
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Nick Thornton
Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.
