Administration January 8, 2002

Average 401(k) Balances Show Signs of Aging

August 13, 2001(PLANSPONSOR.com) - The "average" 401(k) plan participant balance slipped just 0.1% last year, but older participants fared worse, according to preliminary research from by the Investment Company Institute (ICI) and the Employee Benefit Research Institute (EBRI).
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The report notes that at the close of 2000, the average balance, of the 8.3 million individuals who held 401(k) accounts in both 1999 and 2000, fell by 0.1% to $58,774 from $58,850 a year earlier. However, if one takes into account the impact of participants entering and leaving plans, the same average account balance fell 12% to $48,988 from $55,502 at the end of 1999.

Those results stand in some apparent contrast to data released earlier this year from Cerulli Associates. That report noted a widely reported overall decline in 401(k) assets of 3.9% last year, but actually indicated a much larger 10.3% drop in the size of the average participant account. PLAN SPONSOR’s own 2001 RK Survey found an average decline of 15%.

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The EBRI/ICI results take to task the expedient practice of using “averages” which might create distortions based on the impact of participants entering and leaving 401(k) plans.

Picture Perfect

The use of a group of participants who held 401(k) accounts in both years gives a clearer picture of account balances by removing the effect of participants entering and exiting the plans.

The average participant balance in the EBRI/ICI study was $48,988 in 2000, down from $55,502 at the end of 1999. The Cerulli data reported an average 2000 balance of $41,919, down from $46,740 the prior year.

Age Weighted

The EBRI/ICI study noted a significant difference in account balance growth, depending on the age of the participant. For example, the average account balance of participants in their twenties who maintained 401(k) accounts in both 1999 and 2000, actually experienced an increase of about 26.9% in 2000. On the other hand, those in their sixties saw the average account balance falling by 5.8%.

Contributions for younger participants make a larger impact since account balances tend to be small compared with amounts typically contributed. In contrast investment return is of greater importance for older participants since their balances tend to be large relative to their annual contributions.

Among the remaining age group averages, those in their thirties experienced a 5.1% gain, those in their forties a 1.0% gain and those in their fifties suffered an average 2.3% loss.

The data proceeds from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.

Benefits January 7, 2002

One Size No Longer Fits All

Washington, DC, January 7, 2002 (PLANSPONSOR.com) - Mass-production employee communications programs are fast outliving their usefulness in 401(k) education efforts - and will increasingly fall prey to more targeted efforts.
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That was one industry official’s conclusion at an American Banker’s Association conference Sunday, who told the audience that truly effective investment education needs  to be customized for each participant. A trend she notes is part of the move to ‘one-to-one marketing’ demanded by plan sponsors.

“It’s not mass marketing anymore and the only way to get at this one-to-one technology is through the Web because, with any other way, it won’t be cost effective,” said Linda Stinson, Wells Fargo senior vice president and director retirement plan services.  “The only way to get at effective communication is through very targeted, very specific messaging. Those who crack that nut will (stand) in very good stead.”

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Cost “Plus’

Stinson said that plan sponsors can take advantage of recent Web technology to base educational messages on each employee’s financial picture such as their total savings/ investment balances and amount needed for retirement, as well as event-based communications, such as pay increases and participation anniversaries.

In particular, “push” technology – where sponsors can direct certain electronic messages to certain participants – can help educate the employees about other available financial products, she said.

Stinson cautioned conference participants not to forget how important technology can be generally in meeting their business goals, but how carefully such technology initiatives had to be planned and priced. A detailed return on investment has to be a critical part of any technology proposal, Stinson insisted.

She said industry executives shouldn’t count on management approval of a their technology bell(s) and whistle(s) “without showing how you’re going to make (its cost) up and make it up quickly.”

The ABA conference continues through Tuesday.

 

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