Entries in 401 (k) (3)


Median 401(k) Balance Down to $23,000

Photodisc/Thinkstock(NEW YORK) -- At the peak of his retirement savings, around 2006, John Taylor had about $66,000 in his employer-sponsored 401(k)—until the recession and a chain of unexpected events drained his fund completely.

Taylor's story may sound unthinkable to many American workers who don't think twice about their employer-sponsored 401(k) plans, which allow workers to set aside untaxed dollars that can accumulate tax-free until retirement. But the Loveland, Colo., 55-year-old's experience can serve as a reminder for those with short-term memories who experienced major retirement account losses as a result of the most recent recession.

The average 401(k) balance rose to $74,600 at the end of the first quarter, up 8 percent from the same period a year ago among Fidelity Investments' 11.8 million accounts, the company reported on Tuesday. The balance increased 62 percent since the end of the first quarter 2009, which is considered the low of the market downturn from 2008 to 2009. In the first quarter of 2009, the average balance was $46,200.

Taylor, a native New Yorker, had been a maintenance worker for a small company in Colorado for 19 years until he was laid off in November 2008. Taylor said he contributed about $100 to $200 per month, sometimes sporadically, to his 401(k) while at that company.

While collecting unemployment in 2009, he first pulled about $10,000 out of his 401(k), which had already dwindled to about $44,000, to support his wife, son and two grandchildren.

He collected unemployment until July 2010, which is when he got a maintenance job for a company in Boulder. He was only at his job for 11 days when he had a work accident while trimming a tree, breaking his wrist and causing ligament damage in his left arm.

Unable to obtain another job and with physical injuries from his accident, Taylor said he also relied on workman's compensation of $240 a week, which ended in June 2011. He was told by his physician and social service worker that he needs to find another vocation.

"At 55, that's kind of hard to do," he said.

No longer eligible for unemployment benefits because of claim limits, Taylor said he exhausted his 401(k) savings by January of this year to make car payments and pay for other expenses. He has been eating from food banks, which he said has contributed to his weight gain of 30 pounds.

Taylor is now applying for disability benefits.

When asked if he would contribute to another employer-sponsored 401(k) fund if given the opportunity, he said, "That's a hard question because I think I would need better financial advice."

An improving stock market is the main driver behind the increase in the average balance in the first quarter this year, accounting for 80 percent of account balance growth. Participant and employer contribution growth contributed to the remaining 20 percent boost.

The S&P 500 index, though experiencing two straight days of losses, has increased more than 11 percent year-to-date.

Individual and employer contributions also tend to fluctuate based on market performance, Beth McHugh, vice president of market insights for Fidelity Investments, said. Last year in the same period, two-thirds of balance growth was attributable to the stock market while one-third was because of participant and employer contributions.

The median 401(k) balance at the end of this year's first quarter was $23,000, according to Fidelity Investments' quarterly report. That's mostly unchanged from the $24,000 a year ago in the same period. But it's an improvement from the first quarter of 2008, when the median 401(k) balance was $18,900.

McHugh said she has noticed a growing culture among employers and employees of trying to save more in a smarter way.

Some plans have fees as high as 2 to 3 percent a year, which the employer or 401(k) company has not clearly disclosed.

That will change this summer when financial regulatory reform will mandate greater transparency for 401(k) fees.

Copyright 2012 ABC News Radio


Report Shows Employers Are Finally Restoring (401)K

Photodisc/Thinkstock(NEW YORK) -- After scaling back during the recession, it seems employers are starting to feel generous, or less stingy, at least in terms of matching employee 401(k) contributions. According to a new report, 75 percent of employers have restored their retirement fund matches after cutting them during the financial crisis.

Certain sectors were more generous than others. Manufacturing and health care companies had the highest reinstatement rate, at 88 percent. Entertainment had the lowest reinstatement rate: 50 percent.

Global consulting company Towers Watson analyzed 260 employers that suspended or decreased their 401(k) matching contributions from January 2008 through January 2010. The firm, headquartered in New York City, found that of those companies that reinstated the match, 74 percent restored to the same level of match as before the financial crisis.

The most frequent employer 401(k) contribution formula before and after the suspension matched 50 percent of employees’ salary deferrals, up to six percent of pay.

About 23 percent of employers restored the match at a lower rate. Among these companies, the reinstated match was slightly more than half of their original contribution.

Only three percent of those employers increased their employer match, increasing the formula by an average 1.4 percentage points. But in all but one of these cases, the increase was actually associated with a pension close or freeze, and the higher match was intended to make up for some of the lost pension’s benefits.

Of the 260 companies in the sample, 231 had completely suspended their matches, while 29 had only changed their matches, such as reducing benefits. The median duration for match suspensions was 12 months.

Copyright 2011 ABC News Radio


Debt Debate: What Can You Do to Protect Your Money?

Comstock/Thinkstock(NEW YORK) -- The phones were hot Monday at America's largest 401(k) manager, Vanguard, in Philadelphia.  Main Street was calling Wall Street to ask what a deadbeat government would mean to their future.

"By and large," said Karin Risi of Vanguard, the biggest question is: What should I do with my portfolio? Should I get out? Should I reduce my equity exposure?

The stakes are high, and Americans know it. Stocks fell almost one percent Monday.

"Why are we even talking about a potential risk to the U.S. credit rating?" asked Kenneth Polcari of ICAP Equities on the floor of the New York Stock Exchange.  "This should not have happened."

Even if Washington avoids an actual default with a short-term solution, that could still be expensive, with credit agencies downgrading America's AAA rating, which would cost banks and then everyone more to borrow. Citibank is warning its customers, "The kick the can down the road path," now option A in Washington, "would not impress the ratings agencies."

"If they downgrade the U.S. Treasury, that will be the most significant downgrade in the history of rating agencies," said Jim Kessler of Third Way, a non-partisan economic think tank in Washington, D.C.

What would the downgrade alone mean to you?

Analysts forecast a six-percent drop in the stock market. The average 401(k) of $140,000 would lose $9,000. Mortgage rates would likely rise at least a half-point. That's a $19,000 hike on the average $172,000 home loan. And the overall economy would be hit with a one-percent drop in GNP, translating into 640,000 lost jobs. And that's just the immediate damage.

"I would compare it to a marriage where one spouse cheats on the other," Kessler said. "The marriage may survive, but it will never be the same again.  And if there is a downgrade on U.S. treasuries, our economy will survive but it will never be the same again, as well."

So should you move your money?

Several analysts told ABC News that, no, it's best to ride it out because it's too difficult to know when to get back into the market. But if you are just too nervous, foreign bonds in stable countries like Germany or Switzerland may be somewhere to ride the storm.

Copyright 2011 ABC News Radio

ABC News Radio