Employees keep faith with 401(k)s

Despite the fact that employees are losing a lot of money in their 401(k)s, most are staying the course with their retirement plans, according to an analysis by Hewitt Associates LLC.
NOV 24, 2008
Despite the fact that employees are losing a lot of money in their 401(k)s, most are staying the course with their retirement plans, according to an analysis by Hewitt Associates LLC. The Lincolnshire, Ill.-based company’s analysis of 2.7 million U.S. employees showed that the average 401(k) plan balance dropped 14% to $68,000 this year, from $79,000 in 2007. In the past two months alone, employees on average have lost nearly 18% of their 401(k) plan savings, and some have lost more than 30%. Despite these losses, contribution rates have dropped only marginally, to 7.8%, from 8% a year ago, the global human resources consulting and outsourcing company said. Although most employees continue to save, Hewitt’s data showed that some workers are reacting to the market’s roller coaster fluctuations by adjusting their investment mixes and moving money to less risky funds. The amount of 401(k) assets held in equities is at an all-time low with just 53.8% of assets in equities on average, compared with 68.1% a year ago. Loan usage is unchanged from 2007 at 22%; however, overall withdrawals are up, to 6.2%, from 5.4% last year. This is due mostly to an increase in hardship withdrawals, which are up 16% this year. “401(k) plan balances are taking an obvious hit in the current market environment. But it’s encouraging to see that most employees are sticking to their long-term investment strategy and not making rash decisions that ultimately could derail their retirement goals,” Pamela Hess, director of retirement research at Hewitt, said in a statement.

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