401(k) contributions rise slightly in 2011

U.S. workers stuck with their retirement savings rates despite a tumultuous year in the stock market in 2011, according to a new study from Fidelity Investments.

The study indicates employee contributions to 401(k) retirement savings plans rose slightly in 2011 to $5,750 as workers continued to sock away more than 8 percent of their annual earnings into these retirement investments.

Fidelity, whose 11.6 million 401(k) account participants is the largest in the industry, said the average 401(k) retirement savings account balance at the end of 2011 was $69,100. That is $300 less than the average balance at the end of 2010, but there were a number of factors that made that an encouraging sign:

  • The average balance remained essentially flat even though more younger workers are opening retirement savings accounts. Younger workers typically have much lower balances, which drags down the average.
  • The average balances and investment levels were sustained despite a rocky market year. Stocks rose in early 2011 and then tumbled over the summer before rallying at the end of the year. Many foreign stocks, a part of many 401(k) investments, were dramatically affected by economic uncertainty in the European Union.
  • More employers were at least partially matching workers' contributions. The percentage of workers getting money from their bosses increased from 79 percent at the end of 2010 to 82 percent last year, and the average employer contribution increased from $3,170 to $3,270.
  • Since the market meltdown four years ago that reduced average 401(k) investments to $46,200, the number of workers increasing their contributions has far outpaced the number who are cutting them.

The Fidelity study pointed to the increasing popularity of target-date funds, in which people invest in funds designed with their prospective retirement age in mind. Funds for older workers reduce their exposure to risky investments while younger workers are invested in funds with higher growth potential under the assumption that they have more time to recover from sharp, short-term losses.

Fidelity also found that fewer workers were transferring money between investment options. Despite the volatility of the market in 2011, only 10 percent moved money around, down from 15 percent in 2006. This, Fidelity said in a news release, may be attributed to more target date funds and "an appreciation of a long-term, steady approach to retirement saving."

New rules seek to boost transparency

Workers will soon be able to assess retirement plans better when new rules from the U.S. Department of Labor require 401(K) fund administrators to plainly state how much plan participants are paying in fees. Fees are charged for management, record-keeping and other services, and the amount individual participants pay are not always obvious.

The new rules are expected later this year or early next year, and they should make it easier for retirement savers to determine the best savings accounts for their needs.


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