Fidelity released their findings from a survey of 17,095 corporate 401(k) plans it administers with some startling and surprising results. The most significant (or at least, most publicized) finding was that participant balances fell an average of 27%. According to Tiffany Hsu of the LA Times, this is the first drop in 5 years. Specifically, “The average account balance fell to $50,200 last year, from $69,200 the year before, the survey found. In October, the Congressional Budget Office estimated that workers collectively had lost $2 trillion in retirement savings over the previous 15 months”.
Nevertheless, the Fidelity survey was not all negative news. Employee Contributions were slightly up in 2008. Jeff Plungis of Bloomberg.com states that “employees saved an average of $5,600 in 2008, slightly higher than in 2007”. Also, 401(k) participants are diversifying more with their investments. Rebecca Moore of Planadviser.com says that in 2007, 37% of employees invested only in equities; however, in 2008, that number is now 16%. That’s over a 50% drop. Employers have also encouraged diversification of plan investments. The survey states that 60% of plans were using the lifecycle funds as their default option, compared to only 38% at the end of 2007. It seems that in 2008, both the employer and the employee recognize the importance of both contributing and diversification.
While the 27% drop seems like the major headliner, there are many encouraging findings in the Fidelity survey. Other news, such as employers increasing their auto-enrollment feature from 11% in 2007 to 18% in 2008 and that fewer than 1% of companies either suspended or reduced their matching contributions, show that even though they are living in harsh economic times, employees and employers still recognize the need to save for the future.
For more information, please read the following articles:
Rebecca Moore – Planadviser http://www.planadviser.com/research/article.php/3593 (Source)
Tiffany Hsu – LA Times http://www.latimes.com/business/la-fi-retire29-2009jan29,0,53935.story (Source)
Jeff Plungis – Bloomberg http://www.bloomberg.com/apps/news?pid=20601213&sid=acOyjUGFgM30&refer=home (Source)
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