Stock Rally, Contributions Push 401(k) Balances to Highs

Friday, 15 Feb 2013 09:11 AM

By Glenn J. Kalinoski

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Contribution increases along with a rally in stock markets pushed 401(k) balances to record highs last year.

The average 401(k) balance at Fidelity Investment reached $77,300 at the end of 2012, an increase of approximately 12 percent from $69,100 in 2011, as Americans recover from recession losses. The level exceeds the third quarter’s average balance of $75,900, the highest recorded since 2000.

As of June of last year, more than 94 percent of 401(k) participants had a higher account balance then they had before the 2007 stock market plunge, Jack VanDerhei, research director at the Employee Benefit Research Institute, told CNNMoney, citing his analysis of 24 million 401(k) participants.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“It is very encouraging to see that the retirement balances have completely bounced back from where they were during the height of the downturn and that participants have continued to have faith in the 401(k),” Jeanne Thompson, Fidelity’s vice president for retirement insights, told CNNMoney.

Stock gains generated approximately two-thirds of the increase, Fidelity said, while the rest came from contribution increases.

Last year the three major U.S. stock indexes recorded increases between 7 percent and 16 percent. During 2012 participants in Fidelity plans contributed an average of $5,890, or 8 percent of their annual salaries, an increase from $5,500 five years ago. Employers contributed an additional $3,430 on average. Approximately 82 percent of employees received an employer match.

A U.S. News & World Report analysis shows why the 401(k) self-contribution system may be a superior retirement option for some people when compared to pensions.

A pension plan can reduce career mobility. That’s because many company pension plans reward workers more the longer they stay with the company. The result?

“What ends up happening is that many people may want to leave, but end up staying at their current position just because they can’t afford to lose the potential pension benefits,” U.S. News stated.

Another potential drawback is that pension benefits can change — reforms can mean the benefits will be reduced midway through an employee’s career.

Pensions can be eliminated if a company files for bankruptcy, or at least reduced despite government guarantees.

Pension plans do not extend beyond an employee’s lifetime or spouse’s lifetime. What about the children? U.S. News noted that “if you have enough money to sustain your lifestyle to begin with, you might want to invest on your own in hopes of leaving a bigger payout for your children.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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