An analysis by J.P. Morgan Retirement Plan Services of
over 350 defined contribution plans with 1.7 million participants, for which it
provides recordkeeping services, indicates that participants continue to start
saving too late and take too long to reach appropriate savings rates. J.P.
Morgan observed noticeable declines in contribution rates in 2008.
The number of participants who lowered or stopped
contributions in 2008 was 13%, up from 8% in J.P. Morgan's 2007 Ready!Fire!Aim? How some target date fund
designs are missing the mark on providing retirement security to those who need
it most report. Initial contribution levels for those ages 20 – 25 fell, on
average, to 5.7% in 2008.
The average age at which participants reached an 8%
contribution rate was 40, compared to 45.5 in the original survey, and the
average age to reach 10% increased to 57 in 2008 from 55 in 2006.
These results could be due to the uneven timing of salary
raises that J.P. Morgan found. In its original study about 67% of participants
reported they receive raises every two to three years. In 2008, this dropped to
50%.
While the percentage of participants who had a loan
outstanding steadily declined from 20% in 2006 to 18% in 2007 and 17% in 2008,
the average loan amount increased from 15% of overall account balances in 2006
to 20% and 25% in 2007 and 2008, respectively.
In 2008, 7.3% of participants made pre-retirement
withdrawals, up from 6.2% in 2007, and 5.5% in 2006.
J.P.Morgan found a significant number of participants over
age 65 who stopped working in 2006 (80%) withdrew their entire account balances
within just three years. This makes it problematic for target-date strategies
to develop asset allocation models through retirement, according to the company.
"Changes in contribution rates, loans and
withdrawals have a significant long-term effect on target-date fund
outcomes. These behaviors should be factored into portfolio design but
most often are not," said Anne Lester, managing director, J.P. Morgan
Global Multi-Asset Group, in a press release. "Also, this study
confirms that investing at controlled levels of risk, through broader
diversification and relatively rapid reduction in equity exposure in the years
leading up to retirement, continues to increase the number of participants
likely to reach their retirement income goals."
More information is
at http://www.jpmorgan.com/pages/retirement.