Sizing Up Your Employer’s 401(k) Plan

Find out how your company’s 401(k) plan compares to other firms.

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401(k) balances have been declining for the past two quarters, even as workers continue to save in these retirement accounts. The average Fidelity 401(k) account balance was $64,300 in the third quarter of 2011, down from $72,700 at the end of the second quarter and $74,900 in the first quarter, according to a new analysis of 20,606 Fidelity 401(k) plans with 11.7 million participants.

[See The 10 Best Places to Retire in 2012.]

How quickly you can grow your account balance depends on the features offered in your employer’s retirement plan and the saving and investment choices you make. Here’s how your 401(k) plan options and your personal selections compare to the national averages.

Saving rates. The average employee contribution to Fidelity 401(k) accounts was $5,890 during the 12-month period that ended on September 30, 2011, up $200 from a year earlier.

Employer contributions. The average employer contribution increased by $220 to $3,320 over the same time period.

Investment options. The median Fidelity 401(k) plan offers 22 investment options. Participants hold an average of 3.6 funds and 10 percent of workers hold only a single fund. Almost all Fidelity 401(k) plans (98 percent) now offer a target-date fund, and 73 percent of plans utilize target -date funds as the default investment option.

Investment allocation. The average Fidelity 401(k) participant has 64 percent of his or her account invested in equities, ranging from 80 percent among those in their 20s to 41 percent for those age 70 and older. Small numbers of 401(k) participants have extreme asset allocations such as 100 percent equities (12 percent) and no equities (8 percent).

[See 7 Signs of a Good 401(k) Plan.]

Equities are the most popular 401(k) investment, with 42 percent of assets being held in domestic equity, international equity, specialty, and self-directed brokerage investment options. Just over a quarter (28 percent) of 401(k) assets are held in more conservative funds including stable value, fixed income, and short-term investment options, and another 21 percent are in blended funds such as target-date, target-risk, balanced, and strategy investment options. Some 9 percent of 401(k) assets are invested in company stock.

Making changes. 401(k) participants seldom make changes to their investment lineups. Just 11 percent of workers with Fidelity 401(k) accounts made an exchange during the past 12 months. And over half (56 percent) of those who made exchanges did so on only one day. Only 26 percent of workers traded funds on three or more days over the past year.

Loans and early withdrawals. Most 401(k) plans allow loans and early withdrawals for unexpected expenses. Some 11 percent of 401(k) participants initiated a loan over the past year, averaging $8,860. And 22 percent of 401(k) participants have an outstanding loan. Another 2.3 percent of 401(k) account owners took a hardship withdrawal during the same time period, averaging $5,800.

[See Deciding How Much to Contribute to a 401(k).]

Automatic enrollment. Some 401(k) plans (21 percent) automatically sign workers up for the retirement account unless they opt out. Large plans (63 percent) are significantly more likely to automatically enroll workers than small businesses (5 percent). It’s also more common for companies to automatically enroll new or recent hires (60 percent) than all employees eligible for the 401(k) plan (40 percent).

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