Average 401(k) account balances ended the year at $64,200, up another 5.7% from the end of the third quarter and up 28% for the year, according to a press release. The median one-year personal rate of return in 2009 was nearly 27%. By comparison, during the same time period, the S&P 500 had a total return of 26%, the announcement said.
Fidelity also reported the average participant deferral rate remained relatively flat for the year at about 8.2%, 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, in the press release.
An 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% to $163,900 at the end of 2009 from $65,800 at the end of 1999. Fidelity said 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%.
The longer-term analysis also found that 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 personal rates of return showed that 65% 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.
The longer-term analysis shows participants are doing a better job of diversifying their portfolios. In 2000, participants on average directed over 80% of their new contribution dollars into equities, but participants were contributing less than 70% to equities by the end of 2009. The percentage of participants contributing 100% to equities also dropped considerably during that same time period to 19% in 2009 from 47% in 2000.
In addition, contributions made to blended funds, which include both age-based target-date funds and balanced funds, nearly tripled from 9% in 2000 to 26% in 2009.
Fidelity attributes the trend toward diversification 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.
Finally, Fidelity found participant usage of guidance tools was up over 62% in 2009 when compared to 2008.
Fidelity provides recordkeeping services for over 19,000 defined contribution plans for more than 14 million participants.