Workers Put Money Back into 401(k)s
By MARK JEWELL
The Associated Press
Published: August 16, 2009
BOSTON – Workers again are embracing 401(k) plans after the market meltdown and ongoing recession left many unable or unwilling to set aside some of their paychecks for retirement, according to the nation’s largest workplace savings plan provider.
In the second quarter, more participants in Fidelity Investments’ defined contribution plans raised the amount they set aside rather than decreased the percentage of pay they put into their savings. In a study released Wednesday, the Boston-based company said it’s the first time that’s happened in a year.
In each of the previous three quarters, the percentage of Fidelity’s 11.2 million plan participants cutting their contributions topped 6 percent, exceeding the number who increased the amount going into their 401(k)s. But in the three months ended June 30, 4.7 percent boosted their contributions, with just 3 percent decreasing it. The vast majority left their rates untouched in all those periods.
Investors who managed to sock away more have been rewarded, with the Standard & Poor’s stock index rising more than 15 percent in the second quarter. Those who responded to last year’s market plunge by moving money into more conservative money-market funds and Treasury bonds missed out on the rally.
“Workers with a long-term view who stayed the course have been rewarded with a very nice bounce,” said Scott David, president of workplace saving at Fidelity, which manages more than $1.3 trillion, including money in its mutual funds.
The average individual account balance rose 13.5 percent in the second quarter to $53,900, mainly because of rising stock prices but also from plan contributions by workers and their employers.
The figures released Wednesday are based only on workplace savings plans administered by Fidelity, which estimates its share of that market at 25 percent.
Last fall’s market plunge left many investors more nervous about stocks, a trend reflected in Fidelity’s data. About 68 percent of 401(k) contributions in the first half of this year went into stocks, compared with about 75 percent for the past few years. Most of the rest went into bonds or other generally conservative investments such as money-market funds.
Despite the latest quarter’s workplace savings gains, Fidelity highlighted weaknesses among participant age groups that could jeopardize their financial health in retirement.
Although enrollment is rising among those in their 20s, just 44 percent of plan-eligible workers in that age group are participating, Fidelity found.
“That creates a savings gap that is very difficult to overcome later,” David said.
Among those in their 30s and 40s, participation jumps to more than 65 percent, with those workers deferring an average 7.7 percent of their pay. But 23 percent of that group has one or more outstanding loans against their 401(k), and more than 1 in 10 started such a loan over the past 12 months, Fidelity said. Often, such loans are taken out to buy a home, save for children’s educations or respond to a financial emergency.
As for those 50 and or older who are close to retirement, more than 70 percent of those eligible participate in workplace savings plans, with contributions averaging 10 percent of pay.