Larger DC Accounts Hit by Crisis, EBRI Says

By Staff Report

Feb. 26, 2009

Defined-contribution plan participants with higher account balances have been hit hard by the market crisis, as have those near retirement age with high equity exposure, according to an Employee Benefit Research Institute study.

Those 401(k) participants with more than $200,000 in account balances had an average loss of more than 25 percent from January 1, 2008, to January 20, 2009, while those with less than $10,000 had an average growth of 40 percent, as equity losses were more than offset by contributions, according to the analysis.

Also, EBRI said, nearly 25 percent of plan participants 56 to 65 years old had more than 90 percent of their account balances in equities at year-end 2007 and more than 40 percent had more than 70 percent.

“Had all 401(k) participants been in the average target-date fund at the end of 2007, 40 percent of the participants would have had at least a 20 percent decrease in their equity concentrations, and consequently, might have mitigated their losses, sometimes to an appreciable extent,” EBRI said in a news release accompanying the study.

In terms of recovering losses experienced in 2008, the analysis noted that at a 5 percent equity rate of return assumption, employees with the longest tenure at their current employer would need about two years to recover their losses. If the equity rate of return is lowered to zero, the time to replace losses sustained rises to 2½ years.

The EBRI analysis used a database of more than 21 million 401(k) participants.

Filed by John D’Antona Jr. of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce com.

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