By: Russ Kamp, Managing Director, Ryan ALM, Inc.

Fidelity has provided an update through Q3’23 for participants in their 401(k), 403(b), and IRA accounts. The third quarter proved challenging for the participants who saw declines in each of the plan types. The average 401(k) balance declined 4% to $107,700, while the average 403(b) account balance fell 5% ($97,200). With regard to IRAs, those balances declined by 4% to an average of $109,600.

What I find disheartening, but not shocking, is the fact that an increasing number of individuals are accessing their retirement savings through in-service withdrawals, hardship withdrawals or loans. During the third quarter, 2.8% of participants took a loan from their 401(k). The percentage of workers with an outstanding loan increased slightly to 17.6%, compared to 17.2% last quarter and 16.8% in Q3 2022. More troubling, in Q3, 3.2% of participants took an in-service withdrawal, marking a 2.7% increase from a year ago, and forcing the participant to pay taxes and penalties.

Again, defined contribution plans are beneficial as supplemental retirement accounts, but because of easy access to the assets, they remain nothing more than glorified savings accounts. Furthermore, can we encourage the “record keepers”, such as Fidelity, to report on the median balances in these various types of plans. Doing so would provide a truer picture of the state of retirement-readiness in the US.

Fidelity’s Q3 2023 401(k) data was based on 25,300 corporate defined contribution plans and 22.9 million participants, as of September 30. Its IRA analysis was of 14.6 million accounts as of September 30, 2023, and its 403(b) data was based on 10,165 tax-exempt plans and 8.3 million plan participants as of September 30, 2023.