The study, "Resilience in Volatile Markets: 401(k) Participant Behavior September 2007-December 2009," analyzed trends over that period and found that most participants adopted a "stay the course" or "path of least resistance" approach and maintained their retirement programs through the economic downturn. A small minority made changes that could undermine their long-term retirement security.
The results also show the benefits of 401(k) plan design. "Counteracting the notion that 401(k) plans and participants are in dire straits, many of these investors were able to bounce back because they were able to make regular contributions through payroll deduction and to build a balanced portfolio from among a range of options," said Stephen Utkus, head of the Vanguard Center for Retirement Research and co-author of the report, in a statement.
Here is a summary of the findings:
* Balances: The median participant account balance grew by 33% in 2009, after a decline of 31% in 2008, reflecting the effects of both market improvements and ongoing contributions. Between September 2007 and December 2009, the median participant account balance grew by 10%, and six in 10 participants saw their account balances grow.
* Trading behavior: In 2009, despite the ongoing market volatility, only 13% of participants traded in their retirement accounts, compared with 16% in 2008.
* Employee contributions: In 2009, 2.9% of active participants stopped making elective contributions to their plan, down slightly from 3.1% in 2008.
* Access to assets: A small group of participants showed signs of strain from the economy; 18% had a loan outstanding at the end of 2009, compared with 16% in 2008; hardship withdrawals rose 9% in 2009, although only a very small number of participants -- about 2% -- took one; and the number of participants terminating employment in 2009 who chose a cash distribution rather than preserve their retirement assets was unchanged from 2008, but slightly higher than in 2007.
The report analyzed data from 3.2 million participants holding 3.4 million accounts in more than 2,000 plans tracked by Vanguard between September 2007 and December 2009. Just after the beginning of that period, global stock markets fell by more than half and the U.S. economy entered a protracted recession, followed by a subsequent market rally.
"Resilience in Volatile Markets: 401(k) Participant Behavior September 2007-December 2009" is available online.