What ‘Average’ 401(k) Balances Really ‘Mean’

 Every few months another headline pops up lamenting the inadequacy of the “average” 401(k) balance. The implication is usually the same: Americans aren’t saving enough, retirement is in peril, and the numbers prove it.

The problem isn’t that the math is wrong.

The problem is that the math is answering the wrong question.

I’ve noted before how misleading averages can be — and, frankly, medians aren’t a lot better when it comes to tracking 401(k) savings. The issue isn’t the arithmetic; it’s the reality of how people actually work and save.

Because people change jobs.

And when they change jobs, they change 401(k)s — and 401(k) providers.

They might leave the balance behind with the old employer (something that happens a lot). They might roll it over to an IRA (which probably happens a lot as well), in which case it disappears from 401(k) tracking altogether. Or they might roll it into their new employer’s plan — though that still seems to be the minority outcome.

Regardless of what they do, something important happens at that moment: their 401(k) accumulation effectively resets.

Fast forward 10 years. That old 401(k) left behind at a previous employer has received no new contributions. When someone looks at that account as an accumulation, it appears stagnant — and usually inadequate.

Meanwhile, the 401(k) at the new employer started from scratch. Contributions resumed, of course, but from a starting point of zero. They might be aged 40, mid-career, but THAT 401(k) balance looks like they just started.

In other words, the saver didn’t stop saving. Their savings are split in two (and sometimes more than two, depending on job change. As a result, when each recordkeeper publishes reports on “average” balances — well, they only have part of the picture.

Sometimes far less than half.

The Rare Glimpse of the Full Picture

Over the years, one of the few organizations able to transcend these limitations has been the Employee Benefit Research Institute (EBRI)/Investment Company Institute (ICI). By combining data across multiple recordkeepers and tracking individual participants over time, EBRI has occasionally been able to piece together something closer to the real story.

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When they do, the results look very different from the usual headlines.

In analyses that follow consistent participants — people who remain in the database and continue contributing over time — balances are dramatically higher than the averages typically cited in the press.

In one such analysis, consistent savers had nearly double the average account balance of the broader database, and nearly four times the median balance.

Which makes you wonder about all those conclusions based on averages of inconsistent participants.

Or, put differently, averages that mix savers with non-savers, continuous participants with short-term ones, and workers who may have balances scattered across several plans.

The math is correct — but the conclusion is anything but.

Encouraging Signs in the Latest Data

That context makes the latest quarterly report from Fidelity particularly interesting.

Now, to be clear, Fidelity’s data only reflects account balances within its own system. But because it can track participants who have been saving continuously within its plans, it offers another useful lens on long-term saving behavior.

And the numbers are actually pretty encouraging.

Among participants with 15 years of continuous savings, balances are approaching $700,000. Even those with just five years of continuous participation are nearing $400,000.

What’s especially striking is who’s leading the way.

Gen X.

Yes, that much-maligned “middle child” generation between the Boomers and Millennials appears to be saving more aggressively than either group in these cohorts.

Apparently the forgotten generation has been quietly doing its homework.

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Now, none of this is meant to suggest that 401(k) balances are universally sufficient, or that retirement readiness isn’t a legitimate concern.

But averages — particularly the ones most often cited — are, at best, a blunt instrument for measuring that reality.

They frequently combine savers and non-savers, new participants and long-tenured ones, small plans and large plans, high earners and entry-level workers, those at the cusp of retirement and those just getting started. They split individuals’ savings across multiple accounts and sometimes lose track of them entirely. Oh, and things like compensation level, geography and even gender? Never even acknowledged.

The resulting number is mathematically accurate.

But as a measure of retirement readiness?

It’s nearly useless. Worse, actually — it paints a reality that is, surely for some, disheartening.  

Which brings us back to what actually matters.

Consistent saving.

Because when you look at people who contribute regularly over time — whether through EBRI’s long-term datasets or recordkeeper cohorts like Fidelity’s — the story changes dramatically.

Balances grow. Substantially.

And that suggests something worth remembering the next time someone waves around the latest “average 401(k) balance” headline as proof that the system is failing.

For those who actually use it as intended, the 401(k) was never meant to be the end.

It’s a means to one.

• Nevin E. Adams, JD

An Insiders' Perspectve(s)

There’s nothing like the NAPA 401(k) Summit—particularly being at the NAPA 401(k) Summit after the many months and a worldwide pandemic that kept us all apart. 

Each year for the past four years we’ve taken advantage of that gathering (including in 2020 when we gathered “virtually”) to reach out[i] to the nation’s top retirement plan advisors to glean their perspective on a wide range of issues relating to their practice—and practices. 

This year’s Summit Insider was no exception—as we “consulted” with more than 500 retirement plan advisors and home office staff on a range of issues—the criteria in selecting—and rejecting—key business relationships, the things that are over-hyped—and the things that no one is talking about—but that everyone, at least in the eyes of these “Insiders,” should be. We also got some insights on retirement income, important features in choosing target-date funds, rollovers and outcomes. 

We’ve included a number of verbatim comments on what these “Insiders” wish that plan sponsors knew, or knew better. Sometimes those words are harsh, sometimes reassuring—but we asked advisors for their insights, and they were generous in doing so. I only wish we had room to share them all.

Key Findings

Among the key findings:

• Glidepath philosophy topped the criteria on selecting target-date funds, slightly outpacing 5-year performance.
• More than half of the advisors surveyed focus on measuring outcomes at the plan level during every plan review.
• Nearly two-thirds deliver financial wellness as a component of their current service offerings—another 17% do so through an external partner.
• ESG remains the most “overhyped” trend in the industry, outpacing robo-advice and MEPs/PEPs by a significant margin.
• Portability was deemed the most influential/compelling factor to respondents’ plan sponsor clients in considering a retirement income solution. It was also the most cited factor influencing advisor considerations.
• Client support and market intel were tied as the most-valued support from the DC wholesaler partners.
• Service was—still—the dominant criteria in selecting a TPA partner.  
• Rollovers, the SECURE Act’s expansion of a retirement income safe harbor, including lifetime income disclosures on participant statements, managed accounts, and e-delivery were all rated as “positive game changers.” However, a third rated managed accounts as “much ado about not much.”
• Legislation to allow student loan repayment matching was cited as a positive gain changer by 7 in 10, and legislation to expand emergency savings accounts drew “positive game changer” support of 60%. 
• The Labor Department’s fiduciary (re)proposal? A plurality (43%) said it was “too soon to say.” Which, as we’re still waiting for it, seems reasonable (if not obvious). 
• Recordkeeper consolidation was viewed as a negative game changer by nearly half (46%), though a quarter (23%) saw it as a positive.

As for what they wished plan sponsors knew more about, the list included “their roles and responsibilities,” the role(s) of other parties servicing the plan, fees, plan design, plan operations—oh, and “our roles,” of course. The verbatim quotes here are, as you might imagine, “priceless.”

A special thanks to the hundreds of retirement plan advisors who took the time to provide such thoughtful responses—and to the sponsors of this fourth edition of the Summit Insider. Which NAPA members can find in your mail—or online at https://www.napa-net.org/industry-intel/summit-insider.

- Nevin E. Adams, JD

A Valuable ‘Commodity’

I’ve been on the road a lot over the past several weeks – and I’ve noted a remarkably diverse range of prices in gasoline across various locales.

I think it’s fair to label gasoline a “commodity[i]” – what the dictionary describes as “a reasonably interchangeable good or material, bought and sold freely as an article of commerce.”

Oh, sure – you may have a preference for one brand or another, you may not care for the political allegiances of their ownership… but when push comes to shove, it usually comes down to price – because, after all, when it comes to gasoline, it’s pretty much the same stuff.

For years, recordkeeping services – complex and difficult as they can be to provide accurately and consistently (not to mention profitably) – have been characterized (some might say disparaged) as a “commodity,” while fee compression (and the aforementioned complexities) continue to fuel consolidation in that industry.

Honestly, as a former recordkeeper, I’ve never understood how anyone who had any real appreciation for a business as varied, complex, and demanding as that of keeping up – and keeping up accurately – with individual participant accounts over the course of a working career – would be willing to refer to those services as “interchangeable.” Or why any firm that provides those complex services in these challenging times would be willing to let others do so. Certainly any participant, plan sponsor, or advisor who has seen the integrity of that data put at risk by clumsy and inattentive hands can attest to the impact that a failure to do so. Indeed, I’m shocked by the leaders in our industry who label it as such – leaders that I think might well feel differently if they had spent even a small amount of time in those shoes.


Without question, recordkeeping is not only a challenging business, it is expensive to stay current with technology, to keep processes and programs current not only with changes both in the laws and regulations, but the nuances of individual plan designs. And as if that weren’t enough, cybersecurity has recently emerged as a significant threat – little wonder in view of the enormous amount of sensitive financial data to which these “commodity” producers are entrusted.

Where recordkeeping does seem to have been “transformed” into a commodity business is in the pricing of those services. Like the gasoline drawn from a pump, economists would tell you that, since commodity products are “interchangeable,” they compete (only) on price – and to do so (profitably) requires that that you have to achieve economies of scale – and the continued downward pressure on fees for those services continues to force firms to exit or flee to the embrace of larger players.

Further fueling those trends, the plaintiffs’ bar has latched onto the “commodity” concept, having (apparently) determined that it is “appropriate” to be compensated for these services by a flat per-participant charge ($35 seems to be their notion of “reasonable,” at least for the multi-billion-dollar plans targeted, though the courts don’t seem ready to buy into that presumption just yet).
I know that over the years there has been an ongoing attempt to “functionalize,” to break the complex process of recordkeeping (I tend to think of it as participant accounting) down into component parts like some kind of mass assembly line – and perhaps some quarters have done so successfully. Perhaps then, at least in some venues, that once ornate, vibrant (though often complicated and tedious) process has actually been reduced to one so regimented and segmented, so parsed out between segregated operational touchpoints that it might there truly be considered a “commodity.”

But my personal experience is that those who find themselves working with a service provider or TPA that views those critical services as a “commodity” will, in short order, wish they weren’t.

- Nevin E. Adams, JD

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[i]Now, if you’ve ever had the opportunity to shop for groceries in different parts of the country, you pretty quickly become aware of some incredible price differences in a variety of items, including things as basic as produce or milk. But it’s gasoline that tends to draw my attention, not only because it’s something I buy regularly, but because I don’t even have to walk into a store to compare prices.