Fidelity Reports Average 401K Balance Increases 28 Percent in 2009.
BOSTON -- Fidelity Investments, the nation's number one provider of workplace retirement savings plans, today released 401(k) highlights1 from the fourth quarter of 2009 as well as for the full year that showed significantly higher balances with many participants recouping much of their losses from 2008. It also released analysis on participants who have held a Fidelity 401(k) plan for the past 10 years that showed the power of consistent employee savings coupled with employer contributions and dollar cost averaging.
Average 401(k) account balances ended the year at $64,200, up another 5.7 percent from the end of the third quarter and up 28 percent for the year. The median one-year personal rate of return,2 or PRR, in 2009 was nearly 27 percent. PRR is a measure of investment performance during a given period of time. During the same time period, the S&P 500SM had a total return of 26 percent. The average deferral rate remained relatively flat for the year at about 8.2 percent, but the fourth quarter saw the continuation of a positive trend of more participants electing to increase their deferral rates than decrease them.
"The good news is that many workers, in spite of the economy, chose to save in their 401(k)s throughout 2009, and as the markets recovered, so did many Americans' account balances," said Jim MacDonald, president of Workplace Investing at Fidelity Investments. "When we took a longer-term view and looked at the past decade, we found that many participants were able to significantly grow their nest egg, despite periods of great market volatility."
10-YR Continuous Participants Show 150 Percent Increase in Account Balances
Even during a decade that included unprecedented volatility coupled with two of the worst market downturns in history, analysis of employed participants with a Fidelity 401(k) plan for the past 10 years (1999 to 2009) showed their account balance increased nearly 150 percent to $163,900 at the end of 2009 from $65,800 at the end of 1999. The increase in balance was due to continued participant and employer contributions, dollar cost averaging and market returns. The analysis also showed that these continuous participants had a median age of 51 years with a deferral rate of 10.4 percent.
Participants with Higher Risk than their Age-Based Target Date Fund had Lower Returns
For many participants who took higher risk with their asset allocation as compared to age-based target retirement date funds, the past ten year period did not result in higher returns. Analysis of participants with 10-year PRRs showed that 65 percent of them took higher risk than the corresponding age-based Freedom Fund, which was assigned assuming a retirement age of 65. Of that higher risk group, nearly seven out of ten (69%) showed a lower return than their age-based funds over the course of the decade.
Diversification Improves Over the Past Decade
While asset allocation continues to be one of the biggest challenges for most participants, the analysis shows a shift to a more balanced portfolio. Back in 2000, participants on average directed over 80 percent of their new contribution dollars into equities. By contrast, participants were contributing less than 70 percent to equities by the end of 2009. The percentage of participants contributing 100 percent to equities also dropped considerably during that same time period to 19 percent in 2009 from 47 percent in 2000. During that same time, contributions made to blended funds, which include both age-based target date funds and balanced funds, nearly tripled from nine percent in 2000 to 26 percent in 2009.
Much of this trend toward diversification can be attributed to participant education as well as continued employer adoption of target date funds as the default fund. As of the end of 2009, nearly two thirds (65%) of plan sponsors utilize target date funds as their default investment option.
Fidelity has found that participants continue to seek guidance in greater numbers either through phone or via investor self-help tools available free online. Usage of guidance tools such as Fidelity's Portfolio Review and myPlan[R] Retirement Quick Check was up over 62 percent in 2009 when compared to 2008.
Fidelity provides recordkeeping services for over 19,000 defined contribution plans, such as 401(k) and 403(b), for more than 14 million participants across the country.
About Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with assets under administration of over $3.2 trillion, including managed assets of $1.5 trillion as of December 31, 2009. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to over 20 million individuals and institutions as well as through 5,000 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, a leading online brokerage firm and one of the largest providers of custody and clearing services to financial professionals. For more information about Fidelity Investments, visit www.fidelity.com.
Past performance is no guarantee of future results
Neither diversification nor asset allocation ensures a profit or guarantees against loss.
Portfolio Review and MyPlan Retirement Quick Check are educational tools.
The S&P 500[R] Index is a registered service mark of The McGraw-Hill Companies, Inc., and has been licensed for use by Fidelity Distributors Corporation and its affiliates. It is an unmanaged market-capitalization weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. It is not possible to invest directly in an index.
Please note that Fidelity Investments Institutional Services Company, Inc. (FIIS) 401(k) plans, distributed through investment professionals, were excluded from the data provided.
Fidelity Brokerage Services LLC, Member NYSE, SIPC 900 Salem Street, Smithfield, RI 02917
1 All 2009 analysis based on the accounts of 11 million participants in the more than 17,000 corporate defined contribution plans Fidelity recordkeeps as of December 31, 2009.
2 The personal rate of return Fidelity used was based upon a calculation of an account's investment time-weighted performance during a given period of time and excludes contributions, withdrawals, loans and certain other types of account activity made either by the participant or plan sponsor.
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|Date:||Feb 17, 2010|
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