November 11, 2010 / 5:25 AM / 9 years ago

401(k) balances rose with markets in Q3: Fidelity

BOSTON (Reuters) - Balances of 401(k) retirement accounts rose 9 percent on average in the third quarter, Fidelity Investments said, as Americans’ retirement savings increased alongside with the stock market.

But hardship loans against the widely used savings vehicles also rose, indicating many people still face financial strains as the U.S. economy struggles to build a head of steam and joblessness and underemployment stay high.

The average balance was still below the peak level of $70,000 reached in the third quarter of 2007, said Fidelity, the Boston mutual fund giant, which is also the largest administrator of 401(k) retirement savings plans.

Fidelity runs the accounts of some 11 million workers, making its data a closely watched indicator of how well employee finances are holding up.

For the third quarter Fidelity’s data was what might be expected for a period in which the Standard and Poor’s 500 index rose 11 percent. Account balances on average stood at $67,600 at September 30, up from $61,800 at the end of June.

Fidelity attributed the increase both to market gains and steady savings habits. (For a graphic on Fidelity 401(k) accounts: r.reuters.com/gyv74q)

Participants put on average 8.2 percent of their earnings into their 401(k)s, Fidelity said, holding at that level for the seventh straight quarter. More participants increased their deferrals (4.2 percent) than decreased them (3.1 percent).

But loans, another closely watched figure, rose slightly, showing how some workers have come to rely on their retirement savings accounts for certain expenses.

In all, 22.2 percent of account holders borrowed money from their 401(K), up from 21.9 percent in the prior quarter and 20.7 percent year earlier.

Fidelity Vice President Beth McHugh said loans tend to increase even for a period after market lows, and tend to spike in the third quarter as parents tap retirement accounts to cover college tuition payments.

The company also released separate data for people it called “pre-retirees,” or those aged 55 and older who are still working.

The average account balance for that group was $211,300 as of Sept 30, more than double the average of $96,000 10 years ago.

Although some stock market indexes were flat over the period, consistent contributions, dividend payments and employer matches helped boost savings.

“The past decade was certainly not a lost decade for participants who remained committed to saving,” said James MacDonald, president of Fidelity’s Workplace Investing division.

Reporting by Ross Kerber; Editing by Ros Krasny and Steve Orlofsky

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