Richest 401(k) participants hit hardest

While all 401(k) investors have sustained significant losses in the last year, no one has suffered more than the wealthiest 401(k) participants, according to a new study from the Employee Benefits Research Institute. Individuals with more than $200,000 in their 401(k) plans saw the value of their retirement savings plummet by roughly 25% between Jan. 1, 2008, and Jan. 20, 2009, according to the EBRI report, released today. By comparison, individuals with $50,000 to $100,000 in their 401(k) plans lost about 15% of their value during the same time period, while those with $100,000 to $200,000 lost about 20%. Jack VanDerhei, EBRI's research director, said in an interview that individuals with the largest account balances sustained such considerable losses because their retirement plans' contributions could not significantly offset the nearly 40% declines in domestic stock markets last year. "The contributions buffered market losses for a number of much smaller investors," he said, noting that 401(k) participants with $10,000 to $50,000 broke even last year. Mr. VanDerhei added that for those investors with the largest account balances, it could also take a significant amount of time to recoup their losses. For instance, the EBRI report estimated that if equity markets produced an annualized return of just 5% — about half of its historical rate — it could take a 401(k) investor up to 5 years to recover from the declines they experienced in the last year. If equity markets are flat, it could take almost a decade before 401(k) investors are made whole again. EBRI's findings were determined through an analysis of the Washington-based research organization's database of more than 21 million workers.