Fidelity 401(k) Balances Down 27 Percent

Fidelity Investments, the world's biggest mutual fund firm, began a round of job cuts today as part of a plan to reduce its work force by 7 percent. Company revenue dropped sharply because of last year’s stock market plunge. Some customers also shifted funds into safer investments with lower fees.

Interestingly, the giant 401(k) provider reported 10 percent retirement plan growth last year. The number of participants in 401(k)s, 403(b)s, and other workplace savings plans increased by 5 percent to over 14.2 million customers in about 19,000 plans. Here’s a look at how the average Fidelity 401(k) participant fared last year.

Still saving. Participants contributed an average of $5,600 to their 401(k) accounts last year and 96 percent continued to contribute during the difficult 4th quarter, according to an analysis of Fidelity’s 17,095 corporate 401(k) plans representing over 11 million participants. Yet, the average account balance dropped 27 percent from $69,200 in 2007 to $50,200 in 2008, due to market declines.

Loans. Most employers allow workers to take loans from their 401(k) accounts. Participants are typically allowed to borrow up to 50 percent of their vested balance or $50,000, whichever is less, usually for 5 years or less (except for the purchase of a primary residence). Slightly fewer employees initiated a loan in 2008 (9 percent) compared to 2007 (9.7 percent). The average loan amount was $8,400.

Hardship withdrawals. Hardship withdrawals from 401(k)s are available for pressing financial needs, such as medical expenses or foreclosure. Income tax must be paid on the withdrawal and, if the participant is not at least age 59 ½ , a 10 percent early withdrawal penalty. The average hardship withdrawal amount in Fidelity 401(k)s was $6,000 in 2008. But hardship withdrawals severely impact future retirement security and should only be used as a last resort.

Making moves. Only about 13.9 percent of 401(k) participants shifted money from one investment option to another last year, down from 14.2 percent in 2007. Exchanges were the heaviest for retirement savers with the largest account balances, with over 37 percent of participants with $250,000 or more making at least one transfer during the year. Only about 10 percent of participants with balances between $5,000 and $10,000 shifted funds last year.

Diversified holdings. The percentage of 401(k) participants holding 100 percent equities dropped from 20 percent at the end of 2007 to 16 percent at the conclusion of last year. (In 2000, 37 percent of participants had 100 percent of their 401(k) in equities.) Employees are also diversifying beyond company stock, which made up an average of 10 percent of overall assets last year, down from 20 percent in 2000.

Getting advice. Workers calling Fidelity spiked to over 100,000 calls per day in late September through early October. Call volume peaked at 120,000 calls on October 10, 2008, the day after the Dow Jones closed below 9,000 for the first time in five years. Fidelity’s website for 401(k) participants also racked up record traffic in the 4th quarter with 4.6 million unique visitors visiting the site in October, up 14 percent from the same period in 2007.

Employer contributions. Some companies decided to temporarily suspend or reduce their 401(k) company match in 2008. Less than 1 percent of the Fidelity plan sponsors that offered a match at the end of 2007 slimmed their employer contribution. But more companies are automatically enrolling workers in 401(k)s. Nearly 74 percent of firms automatically signed employees up for 401(k)s in 2008, and over 60 percent of plans used lifecycle funds as a default option.