Market Meltdown Costs 401(k) Participants One-Third of Their Retirement Savings

The average 401(k) participant lost nearly one-third of his or her retirement account assets in 2008 because of the market downturn, according to a report released Tuesday, October 6, by the Investment Company Institute and the Employee Benefit Research Institute.

At the end of 2008, the average account balance was $45,519—a 30 percent decline compared with the $65,454 average account balance at the end of 2007. This substantial decline factors in contributions by workers and employers to 401(k) plans last year, which were handily offset by declines in most global equity and bond markets.

The Standard & Poor’s 500 stock index, for instance, fell 38.5 percent during 2008.

The ICI/EBRI report, “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008,” was based on a survey of 24 million 401(k) plan participants in 54,765 plans holding $1.1 trillion in assets.

“Retirement savers, like most investors, suffered during 2008, one of the deepest bear markets in modern history,” Sara Holden, the ICI’s senior director of retirement and investor research, said in a release. “But the growth in account balances among consistent participants over five years highlights the benefits of a regimen of disciplined saving in workplace retirement plans.”

Indeed, workers who invested in their 401(k) plans regularly during the five-year period from the end of 2003 through the end of 2008 experienced asset increases at an annual rate of 7.2 percent, even with the 2008 losses, according to the report. The average account balance of the “consistent” participants, as the report labeled them, rose to $86,513 at the end of 2008, from $61,106 at the end of 2003.

During the past 20 years, 401(k) plans have become the most widespread private-sector employer-sponsored retirement plan in the U.S., the report said. In 2008, 49.8 million Americans had the defined-contribution accounts, holding assets of $2.3 trillion.

Filed by Sara Hansard of InvestmentNews, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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