From the January 2009 issue of Investment Advisor • Subscribe!

January 1, 2009

Retirement Planning News & Products

A recent analysis by Hewitt Associates of 2.7 million U.S. workers found that the average 401(k) plan balance has dropped 14% in 2008 to $68,000, down from $79,000 in 2007. In October and November 2008 alone, employees lost an average 18% of their 401(k) balance, and some have lost more than 30%. Despite the significant market declines, savings rates have only dropped marginally, from 8.0% in 2007 to 7.8% in 2008. Just 4% of employees have terminated their 401(k) plan contributions altogether. While most workers continue to save, Hewitt's data shows that some are adjusting their investment mixes and moving money into less risky funds. The average amount of 401(k) assets held in equities is at an all-time low, with only 53.8% of assets compared to 68.1% a year ago and down from its high of 74.2% in 2000. Despite stable 401(k) savings rates, Hewitt's data also shows that more than 6.0% of workers withdrew money from their 401(k) plans in 2008, up from 5.4% in 2007. The increase is due to an upsurge--16%--in hardship withdrawals.

Does the state where you live affect the likelihood that you will be a participant in a retirement plan? Recent research by the Employee Benefit Research Institute (EBRI) found that Midwestern and Northeastern states had higher participation levels in retirement plans, while Southern and Western states had lower levels. The EBRI data found that for 2007 wage and salary workers ages 21-64 living in Florida had the lowest probability (36.4%) of participating in a retirement plan, while those living in Iowa had the highest probability (58.3%). Wisconsin workers had the highest probability (54.4%) of participation among private wage and salary workers, among full-time, full-year wage and salary workers (67.7%), and for the all-worker definition (49.4%). At the other end of the rankings, EBRI found that Florida had the lowest probability of participation among full-time, full-year wage and salary workers (41.8%).

A recent JPMorgan Funds-sponsored survey has found that when evaluating target date mutual fund options for retirement plans, plan sponsors lack clear and objective criteria for selecting the most appropriate fund, according to 75% of financial advisors polled. Conducted by Harris Interactive, the survey polled 168 advisors with at least three years of experience who recommend or monitor target date funds in defined contribution plans as part of their practice. It found that 75% of advisors believe plan sponsors only sometimes, rarely, or never recognize the differences in glide paths among target date funds, prompting the need for advisors to spend more time educating plan sponsors on these significant differences. Advisors also said that their plan sponsors' single biggest mistake was "focusing too much on fees and not on other factors that could affect participant outcomes." "Choosing a target date fund offered by their record keeper without considering other options" was the second biggest mistake plan sponsors make.

JPMorgan Funds recently launched Target Date Navigator, an evaluation process the company says is designed to assist advisors and their plan sponsor clients to identify target date funds that are most closely aligned to a plan's goals and participants' savings behaviors.

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