Last year we experienced rapid changes in the 401(k) legislative and regulatory environment. It was also marked with record losses in the stock market. How did 401(k) participants react to the changes?
The 2009 Hewitt Universe Benchmarks — How Well Are Employees Saving and Investing in 401(k) Plans research report analyzes the quality of participation, plan balances, investment behavior, account activity, and demographics of over 2.7 million employees eligible for defined contribution plans. Participant behavior is generalized by separating employees into demographic groups that include age, salary, tenure, balance, and gender.
The result is a comprehensive study plan sponsors can use:
As a benchmark — Plan sponsors can learn how their workers' saving and investing behavior compares to that of the average worker.
To shape plan structure — By understanding general patterns of participant behavior across demographic groups, plan sponsors can better determine who might benefit from certain plan features, and how to best structure such features for optimal results.
For targeting communication — Demographic analysis helps plan sponsors pinpoint which groups of workers require certain communication or education about the 401(k) plan.
Surprisingly, this year's data shows that despite those record losses, U.S. workers made few changes to their saving and investing habits in 2008. And wisely, they continued to save. Our research shows that 74 percent of employees contributed to their 401(k) plan last year. This is consistent with previous years' findings. The average 401(k) contribution rate dropped slightly from 7.7 percent in 2007 to 7.4 percent. And more employees increased their savings rate (15.4 percent) than decreased it (14.9 percent). Just under 5 percent actually stopped contributing to their plan in 2008.
Still, some workers reacted to the market downfall. They moved their 401(k) assets into less risky funds in an attempt to time the market. The number of employees making trades rose slightly-19.6 percent in 2008 versus 18.7 percent in 2007. Nine of the ten most active trading days were the day after a large downturn in the market, or days with an average return of negative 4 percent. The amount of 401(k) assets held in equities — a more risky type of funds — reached an all-time low of 59 percent. Stable-value funds — a less risky option — experienced an 11 percent increase in asset allocation.
Access a copy of this report.
