Fidelity Says 401(k) Savings Accounts Recover From 2008 Decline

Posted By on November 19, 2009

Nov. 19 (Bloomberg) — Fidelity Investments said the average balance on customers’ 401(k) retirement accounts has returned to September, 2008 levels on contributions and third- quarter investment gains.

Account balances in plans for U.S. workers benefited from the 22 percent year-to-date gain in the Standard & Poor’s 500 Index along with continuing employee contributions, the Boston- based firm said in a statement today, after reviewing 11 million accounts managed by Fidelity.

“The third quarter actually moved us into positive territory,” said Michael Doshier, vice president of Fidelity’s workplace investing group. “I think that surprised, if not everybody, a lot of people.”

Average account balances rose 13 percent to $60,700 from June to September, Doshier said, and are up 28 percent from $47,500 at the end of March. The gains include investment returns, employee contributions and employer’s matches. A typical 401(k) holds a mix of equities, bonds and cash.

The average balance was $58,400 at the end of September 2008. The S&P 500 Index lost 42 percent between Oct. 1, 2008, and the bottom of the market March 9.

Twenty-seven percent of companies that suspended their 401(k) matching contributions are beginning to make those payments again, according to Fidelity, the largest U.S. administrator of 401(k) plans. Companies have either reinstated the match or plan to do so in the next 12 months as the economy recovers, Fidelity said.

A Spectrem Group survey of 150 U.S. companies in March showed that 34 percent had reduced or eliminated retirement-plan contributions since January 2008.

Fidelity compiles data on contributions, investment returns and average balances quarterly. The report is based on plans at more than 17,000 companies.

In 2008, 49.8 million American workers participated in 401(k) plans with assets totaling $2.3 trillion, according to the Employee Benefit Research Institute and the Investment Company Institute, who together maintain a database of 24 million participants.

President Barack Obama’s 2010 budget calls for an agency to administer employees’ automatic enrollment in 401(k)s and Individual Retirement Accounts. In September, Obama announced rules to make automatic enrollment easier and to allow unused vacation time to be used for retirement savings.

The Senate Special Committee on Aging said Oct. 28 that target-date mutual funds, offered by employers as a default investment for workers in 401(k)s, often have high fees, limited choices and potential conflicts of interest. The funds move money from riskier investments like stocks to more conservative alternatives like bonds over time as an employee approaches retirement.

A coalition called Retirement USA, including the AFL-CIO, the Pension Rights Center and the Economic Policy Institute, is advocating for a universal, professionally managed and guaranteed savings program to supplement pensions, 401(k)s and Social Security.

More at  http://www.bloomberg.com/apps/news?pid=20601087&sid=asxvDsY3C57g&pos=4

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