A ‘Better’ Than Averages Report

 There were some good headlines about 401(k)s last week — but the numbers underneath those “averages” were even better.

Those headlines — reporting on Fidelity’s Building Financial Futures: Q1 2025 report — noted that savings rates hit a record high in Q1, driven by a milestone employee contribution rate of 9.5%, and an employer contribution rate of 4.8% — the highest level to date in that survey. Those types of increases have previously been noted in surveys by the Plan Sponsor Council of America, but this one commented that the combined savings rate of 14.3% is the closest it’s ever been to Fidelity's suggested savings rate of 15%. 

That said, when you look inside those averages — Fidelity noted that Boomers[i] actually had a total savings rate of 17.2%, buoyed by a 12% employee savings rate, while Gen Xers had a 15.4% total savings rate (a 10.3% employee savings rate). Gen Z’s 7.3% employee savings rate and Millennials’ 8.8% rates — although robust for their life stages — actually dampened the “averages.”

Not as widely covered was that 17.4% of participants increased their contribution rate during the quarter (though 4.9% decreased it) — but here it was the younger generations leading the way, with 19.2% of Gen Zers and 18.1% of Millennials upping their “ante.” And while, on average, 61.9% had all their money invested in a target-date fund, that was 81% of Gen Z, but just 44.6% of Boomers. 

‘Average’ Bearings

All of those results, of course, are “averages” — though they are at least segmented by demographic groups that mitigate at least some of the distortions in the broad average.  

To their credit (and the positioning of Fidelity in their press release), most of the industry trade press focused on the increase in savings rate. Unfortunately, most of the “regular” press chose instead to headline the part about a drop in the average balances attributed to market volatility (3% in 401(k)s and 4% in 403(b)s). But while we’re on the subject of “averages,” while the “average” 401(k) balance[ii] at Fidelity was $127,100 — the “average” for Boomers was nearly twice that ($239,600).

Look, that “average 401(k) balance” includes a broad array of circumstances: participants who may (or may not) have a DB program, who are of all ages, who receive widely different levels of pay, who work for employers that provide varying levels of match, and who live (and may retire) in completely different parts of the country (and who experience very different costs of living). “Averages,” as “easy” and tempting as they are mathematically, can obscure — and even distort — those very significant differences. 

Which is why — when it comes to assessing reality — it’s better to look BEYOND the “averages.”

• Nevin E. Adams, JD

 

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[i] Generations as defined by Pew Research: Baby Boomers are individuals born between 1946 – 1964, Gen X are individuals born between 1965-1980, Millennials include individuals born between 1981 – 1996 and Gen Z includes individuals born between 1997 – 2012. 

[ii] That said, here are some points to keep in mind when trying to discern trends from “averages”: Why an Average 401(k) Balance Doesn't 'Mean' Much.

Love and Money

  How well do you (think you) know your significant other?

The passage of time—shared experiences and the process of getting to know each other reveals much—and yet I learned something new about my partner of some four decades just last week!

That brought to mind one of the favorite game shows of my youth was The Newlywed Game. The show featured four couples—all of which were to have been married less than two years. Each of the contestant couples were separated—then asked a series of questions designed to test these newlywed couples’ knowledge of each other, and in some cases their collective memories (and willingness to share publicly). Points were assigned based on answers that matched—but the most memorable, of course, were the missed matches—and the inevitable response of the spouse who was absolutely CERTAIN of the response of their partner.  

Now, a year of marriage is arguably not long enough to know EVERYTHING about your partner. But, and with Valentine’s Day looming, a couple of industry surveys remind us that, while money can’t “buy me love,” it can be a relationship “breaker.”

Indeed, a new survey by Empower asserts that spending habits (38%) and budgeting (33%) are the money topics most likely to lead to disagreements in relationships followed by financial priorities/goals (20%). Over a third of couples (37%) say money is a big relationship stress point, with Gen Zers feeling the most strain around financial issues (48%). Retirement planning/savings, while on the disagreements list, was pretty far down—cited by only 10%—though one assumes that is largely because of its relatively distant timing impact(s).

Fidelity Investments’ 2024 Couples and Money study notes that 45% of partners admit they argue about money at least occasionally—and more than 1 in 4 couples identify money as their greatest relationship challenge. Fidelity’s survey is interesting in that it—like that old Newlywed Game show—surveys couples individually before bringing their answers together to analyze and identify where couples are doing well with their communication and finances. Those couples give themselves high marks on that score—with nearly 9 in 10 claiming they communicate well or very well with their partner.

On that account, the Fidelity report notes that more than a third of couples miss the mark when it comes to how much income their significant other makes—and more than a quarter (27%) admit to being often frustrated by their partner’s money habits, but say they let it go for the sake of keeping the peace. More than half—but just over half (54%) cite as their top financial concern having enough money saved for retirement. Only about half (57%) work together on making decisions about retirement savings and other long-term goals.[i] The good news is more than half of respondents feel very good or excellent about their financial health and 27% of Boomers say building a financial plan together is their love language.   

Inevitably couples are comprised of individuals who have different interests and aptitudes—and money and finances, in particular, can be a sensitive subject. We’re often caught between a fear of being judged—or convinced that judgement is required in order to achieve financial order, but worried that expressing that concern will lead to arguments—or worse. It’s something to bear in mind this Valentine’s Day amidst all the candy, flowers and romantic dinners. 

One thing seems certain, however; just as healthy long-term relationships are built on trust and openness—so are their healthy finances.

- Nevin E. Adams, JD 

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[i] When it comes to having a vision for retirement, Fidelity found that couples are mostly aligned on how they want to be spending their time—with family, friends, traveling, and their hobbies—though about half (53%) of couples who have not yet retired express conflicting views on how much they need to have saved to retire.

5 Things People Get Wrong About ERISA Fidelity Bonds

One of the most important – and, in my experience, least understood – aspects of plan administration is the requirement that those who handle plan funds and other property be covered by a fidelity bond.

While ERISA requires the bond to protect the plan from losses resulting from acts of fraud or dishonesty, fiduciaries often confuse that coverage with insurance that is designed to protect them from liability.

Here are five things you (or your client) may not know about ERISA fidelity bonding – and that, as a result, they may be getting wrong.

An ERISA fidelity bond is not the same thing as fiduciary liability insurance.

The fidelity bond required under ERISA specifically insures a plan against losses due to fraud or dishonesty (e.g., theft) by persons who handle plan funds or property. Fiduciary liability insurance, on the other hand, insures fiduciaries, and in some cases the plan, against losses caused by breaches of fiduciary responsibilities.

Although many plan fiduciaries may be covered by fiduciary liability insurance, it is not required and does not satisfy the fidelity bonding required by ERISA.

You can’t get an ERISA bond from just anybody.

Bonds must be obtained from a surety or reinsurer that is named on the Department of the Treasury’s Listing of Approved Sureties, Department Circular 570. Under certain conditions, bonds may also be obtained from underwriters at Lloyds of London. Neither the plan nor any interested party may have any control or significant financial interest, either directly or indirectly, in the surety or reinsurer, or in an agent or broker, through which the bond is obtained.

Not every fiduciary needs to be bonded.

Most fiduciaries have roles and responsibilities that involve handling plan funds or other property, and generally will need to be covered by a fidelity bond (unless they satisfy one of the exemptions in ERISA or the DOL’s regulations. However, technically an ERISA fidelity bond would not be required for a fiduciary who does not handle funds or other property of an employee benefit plan.

The plan can pay for the bond out of plan assets.

The purpose of ERISA’s bonding requirements is to protect the plan, and those bonds do not protect the person handling plan funds or other property or relieve them from their obligations to the plan, so the plan’s purchase of the bond is allowed.

You can purchase a fidelity bond for more than the legally required amount.

However, note that whether a plan should spend plan assets to purchase a bond in an amount greater than that required by ERISA is a fiduciary decision.

You can find out more about this topic here.

- Nevin E. Adams, JD