Fidelity Reports on 2008 Trends in 401(k) Plans
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Participants Continue to Stay the Course Amidst Market Downturn; Improvements Seen in Worker Engagement, Account Diversification and Company Stock Usage BOSTON--(Business Wire)-- Fidelity Investments, the nation`s No. 1 provider of workplace retirement savings plans, today provided its 2008 State of the 401(k) update, highlighting the most significant actions taken by both employees and employers with regard to workplace savings plans last year. In a year of unprecedented market volatility that negatively impacted most asset classes in both retirement and non-retirement investment vehicles alike, employees in workplace savings plans contributed to their accounts at normal historical levels, took fewer loans than in 2007, improved their asset diversification and continued to decrease company stock holdings. "Despite a complex set of financial issues that led to a severe economic and market downturn, workers in 2008 remained committed to saving for retirement through their 401(k) accounts, and engaged with us more in trying to better understand their risk tolerance and an appropriate asset allocation and diversification strategy, " said Scott B. David, president, Workplace Investing, Fidelity Investments. Participants Continue to Contribute but Markets Take Toll on 401(k) Balances Based on analysis of Fidelity`s 17,095 corporate 401(k) plans representing over 11 million participants, Fidelity found that in 2008 participants contributed an average of $5,600 (pre-tax earnings) to their 401(k) accounts, slightly higher than 2007 levels. Workers continued to contribute to their plans, even in the difficult fourth quarter of 2008, with 96 percent of active 401(k) participants as of the third quarter, continuing to contribute in the fourth quarter. This percentage is in line with normal fourth quarter activity, which always experiences a slight decline in the portion of those participants making pre-tax contributions who have reached the IRS 402(g) limit for the year ($15,500 in 2008). Despite ongoing contributions into 401(k) plans, unprecedented market declines resulted in the average workplace savings account balance dropping 27 percent in 2008 to $50,200 from $69,200 in 2007. 2008 Loans, Hardship Withdrawals and Exchanges Fidelity data on 401(k) loan usage, hardship withdrawals and account exchanges in 2008 did not indicate significant behavioral changes. The following chart represents the percentage of Fidelity`s participant base taking action in each area: 4Q 2008 4Q 2007 Full Year 2008 Full Year 2007 Loans 2.2 percent 2.8 percent 9.0 percent 9.7 percent Taken Hardship Withdrawal 0.7 percent 0.6 percent 1.8 percent 1.6 percent Exchanges 6.1 percent 5.8 percent 13.9 percent 14.2 percent * Percentage of active participants taking a loan continues to trend down. Fewer employees initiated a loan in 2008 (9.0%) when compared to 2007 (9.7%). For those who did take a loan in 2008, the average amount was $8,400. Most employers offer a loan option in their workplace savings plan. Participants are usually allowed to borrow up to 50 percent of their vested balance or $50,000 whichever is less. The term of the loan cannot exceed 5 years except for the purchase of a primary residence and can be paid back usually through a payroll deduction with after-tax funds. * Hardship withdrawals continue to trend up, but still remain a small percentage of Fidelity`s active participant base. The average hardship withdrawal amount decreased slightly in 2008 to $6,000. Hardship withdrawals must be available through the plan and can only be taken if there is an immediate, heavy financial need such as for medical reasons or workers facing foreclosure. If the participant is not 59 ½ years of age, the withdrawal will be subject to a 10 percent withdrawal penalty as well as income tax. As a result, a hardship withdrawal should only be used after all other sources of funding have been exhausted. * Exchanges were down slightly in 2008 from 2007. The portion of participants making an exchange to their 401(k) account - shifting money from one investment option to another - was 13.9 percent in 2008, a slight decline from the 2007 level of 14.2 percent. Participants with 100 percent in lifecycle options had a significantly lower exchange rate than the overall participant base. In the fourth quarter, only 1.0 percent of lifecycle holders made an exchange compared to the overall average of 6.1 percent. For the year, an average of 2.9 percent of 100 percent lifecycle holders made an exchange compared to the 13.9 percent of the overall participant base. Exchange activity was the heaviest for participants with the largest account balances, with over 37 percent of participants with $250,000 or more making one or more exchanges during the year. Conversely, about 10 percent of participants with balances from $5,000 to $10,000 made an exchange in 2008. Participants Better Diversified; Percentage with 100 Percent Equities Drops The trend toward diversification continued in 2008 with the percentage of participants holding 100 percent equities in their workplace savings plan dropping to 16 percent at the end of 2008 from over 20 percent at the end of 2007. By comparison, 37 percent of participants were holding 100 percent equities in 2000. The role of company stock in workplace savings plans has also been trending down. As of the end of 2008, company stock made up about 10 percent of Fidelity`s overall assets in workplace savings accounts, down from over 20 percent in early 2000. Historic Markets Prompt Participants to Engage, Re-Evaluate Portfolios in Q4 Workplace savings participants reached out to Fidelity in record numbers as the stock market hit a historic low in the fourth quarter of 2008. Workers calling Fidelity spiked to over 100,000 calls per day in late September through early October. Call volume peaked at 120,000 calls on October 10, 2008, the day the Dow Jones Industrial Average closed below 9,000 for the first time in five years. In addition, Netbenefits.com, the Web site for Fidelity workplace savings participants, also experienced record numbers in the fourth quarter with 4.6 million unique visitors visiting the site in October, an increase of 14 percent over the same period in 2007. Nearly one million workers in 2008 also utilized one of the many retirement savings planning tools provided by Fidelity on Netbenefits.com. Plan Sponsors Continue to Adopt Auto, Small Number Drop Company Match Employers continue to adopt auto solutions - Auto Enrollment, Auto Increase and Lifecycle as a default. The most dramatic increases have been seen in the use of lifecycle funds as the default investment option. By the end of 2008 over 60 percent of plans were using lifecycle funds as a default option, up from 38 percent at the end of 2007 and just over 5 percent at the end of 2005. Adoption of auto enrollment rose to 16 percent in 2008 from less than 11 percent in 2007. Companies using auto increase rose to nearly 74 percent in 2008 from about 70 percent in 2007. Faced with a weakening economy, some companies decided to temporarily suspend or reduce their company match in 2008. The number of companies taking this action represents less than 1 percent of the Fidelity plan sponsors that offered a match at the end of 2007. Fidelity`s Defined Contribution Business Reports 10 Percent Plan Growth Fidelity`s defined contribution recordkeeping business continued to show strength in 2008. Overall, defined contribution plans (401(k)s, 403(b)s and other workplace savings plans) serviced by Fidelity grew more than 10 percent in 2008 to over 19,000 plans. The number of participants increased 5 percent to over 14.2 million participants. About Fidelity Investments Fidelity Investments is one of the world`s largest providers of financial services, with custodied assets of over $2.6 trillion, including managed assets of over $1.2 trillion as of December 31, 2008. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to 24 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, the largest mutual fund supermarket and a leading online brokerage firm. For more information about Fidelity Investments, visit www.fidelity.com. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 300 Puritan Way, Marlborough, MA 01752 516045 Fidelity Investments Corporate Communications (617) 563-5800 Copyright Business Wire 2009