Fidelity: 401(k) Participation Levels Drop to 68% in 2002

December 3, 2003 ( - While participant 401(k) balances and are participant rates continued to decline last year, encouraging news could be found for plan sponsors looking toward the future.

On the decline in 2002 were averages in both 401(k) participant balances and overall participation rates. The average participant account balance saw a dip of 12% in 2002 to $44,000 while the participation rate slipped 1.5% to 68%, according to Fidelity Investments’ Building Futures IV report.

For those participants who continue to hang on, deferral rates have increased to approximately 7% of compensation. Increased contribution rates could be attributed to a number of different factors, such as the market rebound in 2003 that has pushed the average account balance to approximately $51,500 by the end of 2003.

Evidence of market confidence was found through in the November phone poll of participants who called Fidelity. More than eight out of 10 (82%) intend to either increase or maintain the same contribution levels in 2004 and 68% are confident that they will have enough money saved to meet their retirement needs.

“Overall, the trends detailed in Building Futures underscore that America’s defined contribution system is performing well and meeting its intended goal of helping workers save for retirement through the workplace,” said Kathryn Hopkins, executive vice president, Fidelity Institutional Retirement Services Company, in a statement.

And as balances go up, so to does participant satisfaction levels with the returns of their retirement plan. Three-quarters of plan participants are satisfied with the overall return in their 401(k) plan this year and compared to a year ago; more than half are as or more certain about how and where to invest their 401(k) contributions.

Fidelity found retirement investments are being made with a keen eye to individual situations, with the majority of older workers investing in more conservative options and younger employees preferring equities. Overall, the majority of plan participants favored the domestic equity asset class, which holds close to 40% of assets from the nearly 10,000 defined contribution plans.

Breaking down the age groups further, Fidelity found more than half (52%) of participants were between the ages of 30 and 50, with an account balance of less than $30,000. Older participants tended to earn more than their younger counterparts, but the largest portion of participants in all age groups under 65 had compensation between $50,000 and $74,999. Participants in larger plans, meanwhile, tended to have higher account balances across all age groups.

Sponsor Moves

Plan sponsors made moves as well to improve their fiduciary position and overall plan design. The number of plans with company stock and a company match that required the match to be invested in company stock decreased to 35% in 2002 from 48% in the previous year. Further, one out of five plans with company stock reduced or removed restrictions on exchanging out of company stock while more than 40% are considering reducing or removing these restrictions in 2004.

Outside of company stock, Fidelity found the average number of investment optionsavailable to participants increased in 2002, to 16, compared to 14 in 2001 and 12 in 2000. For the first time, more than 90% of all participants were in plans offering 11 or more investment options. Despite all of these options, 43% of participants continued to hold just one or two options regardless of the number of options available to them.

The report also revealed that nearly 90% of sponsors are taking advantage of new legislation by adopting catch-up provisions made available through the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). Additionally, 78% of those plans for which nondiscrimination testing was performed passed the actual deferral percentage (ADP) test and 97% passed the actual contribution percentage (ACP) test, a number that does not include those plans for which the ACP test was not applicable.

Fidelity’s report is based on an analysis of data from 10,000 defined contribution plans with $361 billion in assets and more than eight million participants. More information is available at .