401(k) balances hit 10-year high last year

FEB 24, 2011
Average balances of 401(k) retirement plans reached a 10-year high at the end of last year as workers continued to save and the market rebounded, according to Fidelity Investments. The average account balance rose to $71,500 in 2010, up about 11% from the end of 2009, said a report released today by the Boston-based mutual-fund manager. That compares with an average balance of $54,700 in the fourth quarter of 2000, the firm said. Fidelity, the largest provider of 401(k)s, has 11 million participants in almost 17,000 employer-sponsored defined contribution plans. “This is a very positive finding,” said Beth McHugh, vice president of market insights for Fidelity. “People are saving.” About two-thirds of the increase in account balances last year was driven by market performance while one-third was attributed to participant action such as contributions, McHugh said. The Standard & Poor's 500 Index gained about 13% last year. The 401(k)-type retirement plans are about 30 years old and are named after a section of the Internal Revenue Code, according to the Washington, D.C.-based Employee Benefit Research Institute. A 401(k) generally lets employees defer a portion of their wages to the account on a pretax basis. Contributions are limited to $16,500 for 2011 and those ages 50 or older may set aside an additional $5,500, according to the Internal Revenue Service. Worker Contributions Workers deferred an average 8.2% of their salaries last year, a rate unchanged for the past two years, the study said. That figure excludes employer matches, which are typically 50% of employee contributions up to 6% saved, McHugh said. Most participants continued to contribute through the financial crisis and recognized that withdrawing funds or borrowing from their plans would have a long-term effect on their ability to retire, said McHugh. Almost four out of five savers didn't take a loan from their plans last year and 33% cashed out when leaving a job. The remainder stayed in their plans or rolled money into individual retirement accounts, she said. Fidelity's report doesn't reflect average balances of savers who may have multiple 401(k)s from different employers or IRAs, said McHugh. Outliving Savings Lawmakers and regulators concerned about Americans outliving their savings have scrutinized fees and investments in 401(k)s as retirement money has shifted from traditional pensions to defined contribution accounts. Target-date funds in retirement plans, which move money from riskier assets such as stocks to more conservative alternatives like bonds as a worker ages, lost as much as 41% in 2008, according to Morningstar Inc., a Chicago-based research firm. The fact that participants stayed in 401(k) plans and continued to contribute after the S&P 500 Index lost 38 percent in 2008 is “an ultimate validation that the program is permanent,” said David Wray, president of the Chicago-based Profit Sharing/401k Council of America. “In the back of people's minds all along was if we had a bad event, the system would collapse,” Wray said. “This system is now permanent. It's the real deal. We went through the most horrific experience that plan participants could have and they stayed the course.” —Bloomberg News

Latest News

Cerulli: Advisors struggle to turn 401(k) savers into wealth clients
Cerulli: Advisors struggle to turn 401(k) savers into wealth clients

Just over 10% of advisors' wealth clients come from defined contribution plans, as capacity, data and technology gaps block the bridge to wealth

Alto to buy Forge Trust from Schwab in self-directed IRA push
Alto to buy Forge Trust from Schwab in self-directed IRA push

Deal creates a $20B-plus custody platform for private market investing in IRAs, months after Schwab closed its Forge Global purchase

Wall Street bonanza! The Street on track to hit a record $90 billion in profits: Report
Wall Street bonanza! The Street on track to hit a record $90 billion in profits: Report

Despite the good times, advisors should tread carefully, said one veteran industry executive.

Most workers have retirement plans but no retirement strategy
Most workers have retirement plans but no retirement strategy

Gallagher data reveals a huge gap in financial confidence between employees who work with an advisor and those who don't.

Small employers are more open to pooled retirement plans
Small employers are more open to pooled retirement plans

PEP assets hit $34bn at year-end 2025 as advisors navigate mandate deadlines and a 48% employer interest rate.

SPONSORED Built on insurance experience to deliver on long-term promises

Knighthead Life entered the market with a competitive MYGA. A strong launch earned advisor confidence and paved the way for FIAs.

SPONSORED In the Age of AI, Trust Becomes the Advisor's Greatest Asset

As AI makes financial information more accessible than ever, Lana Hock explains why human judgment, trust, and empathy remain the qualities clients value most in a financial advisor