Modest improvements in 401(k) participation, diversification found
Employers’ efforts to boost participation in 401(k) plans apparently have had only modest success, a new study by Hewitt Associates Inc., Lincolnshire, Ill., finds.
Plan balances also have increased only slightly in the past three years, as has the amount of diversification in employees’ investment portfolios, according to Hewitt.
Hewitt’s follow-up to its earlier research shows participation in 401(k) plans during 2004 increased 2.1% to 70.3% from 2002.
That means nearly 30% of workers still didn’t participate in their company’s plans. Among workers under age 30, the figure was even higher: 54% did not participate.
Lori Lucas, director of participant research at Hewitt, calls the results “discouraging.” She points out that among those who did participate in their company’s retirement plan, 23% had a total plan balance of under $5,000.
“This is especially concerning because 401(k) plans are the main retirement vehicles for an increasing number of employees,” Lucas says.
Average total plan balance among 1.8 million participants surveyed was $68,630, with a median of $25,640.
Balances increased just 21% in 2004, compared to 35% the previous year, largely due to a decline in stock market returns.
Looked at by age, the average account was around $11,000 for those under 30; $37,000 for those 30 to 39; $80,000 for those 40 to 49; $115,000 for those 50 to 59; and $97,000 for those 60 and up.
Average plan balances ranged widely by industry: $120,000 for workers in the chemical industry; $102,000 for computers and office equipment; $91,000 for banking-finance; $70,000 for insurance; and $23,000 for retail.
Almost 80% of employees who took part in a 401(k) plan contributed enough to receive the company match in 2004; however, 31% contributed only just enough to obtain the full match.
Because match thresholds are typically only 3% to 4% of pay, the figures suggest that even employees who participate in their 401(k) plan often fail to set aside enough, Lucas warns.
Another troubling sign: Relatively few employees tried to rebalance or reallocate their 401(k) portfolios in 2004. Only about 17% transferred investment funds within their 401(k) account. That suggests they are not paying attention to their plans, other than occasionally checking their balance, Hewitt concludes.
The average number of mutual funds held by participants increased to 4.2 funds, from 3.6 in 2002. The number of employees holding just one or two asset classes declined to 32% from 39% in 2002, a fact that suggests some employers are having success in their efforts to encourage diversification, Hewitt says.