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The Takeaway: 401(k) Balances Down Despite Higher Contributions
Posted By Elizabeth Nolan Brown On February 9, 2012 @ 9:47 am In Bulletin Today | No Comments
The 401(k) Paradox: Employees contributed more to their 401(k) plans in 2011, according to Fidelity Investments, and matching contributions from employers were up, too. Fidelity manages 11.6 million 401(k) plans. Participants saved an average of $5,750 through paycheck deductions in 2011, up from $5,680 the year before. The average matching contribution paid by employers was $3,270.
But despite this uptick in contributions, the year-end average for Fidelity’s 401(k) participants was down $300 from 2010, the company reports. What gives? The stock market, for one thing. It performed well in the first half of the year, but then sank over the summer. Year-end rallying helped somewhat, but not always enough to offset earlier stock losses. And 401(k) fees, paid to plan managers and administrators, also helped eat up savings increases.
Maybe the topsy-turvy stock market is one reason why more workers are opting to put their 401(k) investing on “auto pilot” by choosing target-date mutual funds. These funds-which allocate risk based on a target retirement date, skewing more conservative closer to retirement-get mixed reviews from financial analysts (some think they’re too aggressive, even nearing retirement dates). According to Fidelity, 26 percent of its participants had 100 percent of their 401(k) assets in target-date funds at the end of 2011 (up from 17.4 percent in 2009).
For many employees, with market volatility and lack of confidence in their own skills, they’ve actually found that target-date funds help them get some peace of mind,” said Beth McHugh, a Fidelity vice president who analyzes customer trends.
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