With all the turmoil in the financial markets in 2008, it
would be fascinating to know how individual investors in retirement plans
handled the storm and what actions they took. Thanks to new data from Fidelity
Investments, the largest provider of company retirement plans, we now have that
data from more than 17,000 corporate 401(k) plans covering more than 11 million
individual participants. Here are the key findings and insights:
Fidelity found that
in 2008 participants contributed an average of $5,600 to their 401(k) accounts,
slightly more than in 2007. That's right -- folks contributed more, not less
money in 2007. So, despite all the doom and gloom in the mainstream media, people
continued to save as they did in 2007. And, get this - Fidelity says that workers
continued to contribute to their plans, even in the difficult fourth quarter of 2008,
with 96 percent of active 401(k) participants as of the third quarter,
continuing to contribute in the fourth quarter. Fidelity's
reports states that this percentage is in line with normal fourth quarter activity,
which always shows a slight decline in the portion of those participants because
some have hit the maximum allowed for the year ($15,500 in
2008).
Fidelity data on
401(k) loan usage, hardship withdrawals and account exchanges in 2008 did not indicate
significant behavioral changes. Fewer employees initiated a loan in 2008 (9.0%)
when compared to 2007 (9.7%). So called hardship withdrawals edged
slightly higher, but still remain a small percentage of active participants (at
the end of 2008, 1.8% took such loans compared with 1.6% from the end of 2007).The average hardship withdrawal amount actually decreased
slightly in 2008 to $6,000. (Hardship withdrawals must be available through
the plan and can only be taken if there is an immediate, heavy financial need
such as for medical reasons or possible foreclosure.)
Despite all the turmoil in the markets and 24/7 news coverage, exchanges
(employees shifting money from one investment option to another) were actually down
slightly in 2008 from 2007. The
portion of participants making an
exchange in their 401(k) account was 13.9 percent in 2008, a slight decline
from the 2007 level of 14.2 percent. Most
interesting was the fact that participants with all of their money in lifecycle
options had a significantly lower
exchange rate (just under 3 percent for the year) than the overall participant
base (at 13.9 percent).
Some companies decided to temporarily
suspend or reduce their company match in
2008 but the number of companies taking this action represented less than 1
percent of the firms that offered a match at the end of 2007.
In summary, the data from Fidelity's more than 11 million
401(k) participants demonstrate that their investors are being pretty
intelligent with their retirement nest eggs. (I think Fidelity's 401(k)
department deserves some credit here too as stressed participants call-in
during rough markets and well trained representatives encourage investors to
stick with their plans rather than doing dumb things like selling after markets
have already fallen sharply). Folks are continuing to save for retirement and
fewer individuals are borrowing although there was a slight increase in
hardship withdrawals.
People didn't do more trading in 2008 compared with 2007
and investors in highly diversified lifecycle funds, which I have long
recommended for giving investors a smoother ride, did the least trading. Companies
by and large continued with their matching programs. All of this data shows how
misleading so much of the gloom in the mainstream investment media
misrepresents what the public is doing with their investments and what
companies are doing with their retirement plans.