As Pension Protection Act Becomes Law, Fidelity 401(k) Report Shows Some Progress in Employee Savings, but Participation and Deferral Rates Still Lagging.

BOSTON -- Automated Programs Show Greatest Promise, Generating 22 Percent Greater Employee Participation

On the heels of the Pension Protection Act of 2006 being signed into law today, Fidelity Investments released its annual report on the state of 401(k) investing, which said that the average 401(k) account balance in 2005 increased to $62,500, a 3 percent increase from 2004 levels. However, employee participation in workplace savings plans dropped slightly, while average deferral rates held steady.

Findings from Fidelity's seventh edition of Building Futures -- a comprehensive analysis of more than 9 million participants in nearly 12,000 corporate defined contribution (DC) plans serviced by the firm at the end of 2005 - revealed that for workers who remained active in a 401(k) plan from 2004 to 2005, the average account balance grew by 13 percent from $63,000 to $72,000. Yet a 1.1 percentage point decline to 64.4 percent in participation rates and a relatively flat 6.9 percent deferral rate showed that employees still need encouragement and education around the benefits of participating and contributing more to workplace savings plans.

Auto-Programs Prove Their Worth As Critical Legislation Becomes Law

Fidelity found that in 2005, participation rates for automatic-enrollment (AE) eligible employees in 401(k) programs were 22 percent higher in plans with AE, when compared to plans without AE. The increase in participation rates was greatest - more than 40 percentage points - among younger and lower-compensated employees.

The Pension Protection Act of 2006 provides safe harbor for employers to automatically enroll workers into workplace savings plans and automatically increase their contribution levels at appropriate intervals.

"Given the many, legitimate concerns surrounding traditional pensions, rising retiree health care costs and the future of Social Security, plan sponsors, providers and participants alike should move urgently to take full advantage of the opportunity Congress has given us to revitalize our nation's workplace savings plans and improve the retirement readiness of millions of Americans," said Jeffrey R. (Jeff) Carney, president, Fidelity Institutional Retirement Services Company, the nation's largest provider of 401(k) plans.

Building Futures also showed that of the nearly 100,000 employees automatically enrolled into a 401(k) plan last year, 87 percent remained in the plan throughout the year and 18 percent increased their deferral rates.

Additionally, automatic increase programs (AIP), which systematically increase a participant's deferral rate annually, are also having a positive impact on savings. Although in 2004 AIP participants on average started with lower deferral rates (an average of 6.5 percent compared with 7.0 percent for non-AIP participants), the analysis found that after only one or two annual increases, AIP participants' average deferral rates surpassed those of non-AIP participants (7.9 percent compared to 7.4 percent).

"These numbers overwhelmingly prove that auto-programs not only work, but that they are highly effective at enrolling younger and typically harder-to-reach workers in their 20s and 30s, who have the most to gain from years of compounded growth," said Carney. "This new legislation should pave the way for all employers to embrace automatic plan design features which will get every worker saving systematically each month for their retirement."

Compounded Growth Leads to Significant Balances and 401(k) Millionaires

Among 401(k) investors who have been participating in their plan continuously over the past five years, the average account balance reached $100,000. The report also revealed that Fidelity administers 401(k)s for about 19,500 participants, who have more than $1 million in their plans - more than double the number of 401(k) millionaires it served in 1998.

Lifecycle Funds Gain Traction

The report found that 83 percent of the nearly 12,000 plans administered by Fidelity now offer at least one lifecycle fund option, which helps participants by providing age-based diversification within a single "fund of funds." This figure is up over 2004 when 78 percent of plans offered such a fund. The number of participants investing in a lifecycle fund also increased from 21 percent in 2004 to 25 percent in 2005.

About Fidelity Employer Services Company

Fidelity Employer Services Company provides benefits and human resources administration, talent planning, payroll solutions and stock plan services to more than 20 million employees in the U.S. as of June 30, 2006.

About Fidelity Investments

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of more than $2.6 trillion, including managed assets of $1.3 trillion as of June 30, 2006. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to more than 22 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, the largest mutual fund supermarket and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com.

Fidelity Investments Institutional Services Company, Inc., 82 Devonshire Street, Boston, MA 02109

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