Investors in Fidelity Investments' 401(k) plans saw their balances shrink by 27% in 2008, says Fidelity, the nation's largest administrator of retirement plans.
The company's annual "State-of-the-401(k)" report, released last week, drew on data from 17,095 workplace plans and more than 11 million savers. Fidelity said the report showed surprising resilience among retirement savers, even as the financial markets tanked and retirement balances dwindled.
The numbers were nonetheless alarming: The average balance dropped $19,000, from $69,200 in 2007 to $50,200 last year. Even more alarming: That drop includes the $5,600 the typical saver contributed in 2008.
That means the average investment loss in the plans was greater than 27%, probably closer to the 33% decline of the Dow Jones Industrial Average last year.
A Fidelity spokesman said that, despite the declines, average contributions actually increased slightly from 2007.
That should eventually help younger workers who have time to make up for last year's losses. But for many baby boomers who had hoped to begin tapping their retirement plans in the near future, the investment losses are a tough blow.
And even as 401(k) savers stuck to the plans, some employers decided to temporarily suspend or reduce their company match in 2008. Fidelity didn't specify how many, only that the number represents less than 1% of the plans that offered a match at the end of 2007.
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Savers haven't been frightened away. In the dismal waning months of 2008, 96% of plan participants continued to contribute, in line with a typical fourth quarter, Fidelity said. (That number declines at the end of the year as higher earners reach their contribution limits.)
They're not panicking, either. The percentage of savers shifting money from one investment in their accounts to another fell to 13.9% from 14.2% in 2007. Those with the fattest accounts made the most changes, Fidelity said, with 37% of those with $250,000 or more making a shift during the year. While there may be some wisdom to changing an account's asset mix, history shows that chasing performance -- in this case by switching 401(k) options -- often leads to even worse investment returns.
Fewer savers are borrowing against their 401(k)s, down from 9.7% in 2007 to 9.0% in 2008. The average amount last year was $8,400.
Hardship withdrawals rose, but not much, from 1.6% to 1.8%. The average withdrawal was $6,000 (on which the saver must pay a 10% penalty, plus income tax, unless he or she is 59.5 or older).
Savers were more diversified. The percentage of people invested 100% in equities fell to 16% from more than 20% in 2007 -- and 37% in 2000. And fewer savers are choosing their own companies' stocks: Company stock made up 10% of assets in Fidelity's workplace accounts in 2008, down from more than 20% in 2000.
Employers made enrollment and contributions easier. Adoption of automatic enrollment rose to 16% in 2008 from less than 11% in 2007, Fidelity said, with 60% of plans using life-cycle funds as their default investment option.
Trying times for investors -- and fund companies
Fidelity said its call volumes spiked to record levels in the fourth quarter, peaking at 120,000 calls on Oct. 10, the day after the Dow Jones Industrial Average closed below 9,000 for the first time in five years.At the end of December, Fidelity had managed assets of more than $1.2 trillion, down from $1.6 trillion a year earlier.
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