Fidelity Reports Record Gains for 401(k) Participants

May 24, 2013 (PLANSPONSOR.com) – Fidelity Investments released a quarterly analysis of its 401(k) accounts, which found that the overall average balance achieved a record high $80,900 at the end of the first quarter.

This represents an 8.4% increase over the prior year, when the average balance stood at $74,600 and 75% growth since the market low during the first quarter 2009, when it dropped to $46,200. Continued contributions from the employee and employer, as well as the strong equity markets, contributed to the overall gains.

“We looked at the account balance growth to see how much of it was the market and how much of it was employee and employer contributions. In this case, two-thirds of the growth was due to the market and one-third to contributions. While during other periods the split was more 50-50, one-third is nothing to case aside,” Jeanne Thompson, Fidelity Investments, vice president of Market Insights, told PLANSPONSOR.

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New analysis of 401(k) accounts of preretirees (age 55 or older), who had an employment history of 10 years or more with their current employer, showed very strong growth over the last four years. The average balance for this group reached $255,000 by the end of the first quarter, nearly double since the market low during the first quarter of 2009, when their balance dipped to $130,700.

“The basic savings principles we encourage workers to adopt, such as saving consistently and holding a balanced portfolio with an appropriate exposure to equities—even when close to retirement—were key factors in driving better outcomes since 2009,” said James M. MacDonald, president, Workplace Investing, Fidelity Investments. “It’s important to continually remind employees that sticking to this savings philosophy may not always reward in the short term but may over the long term.”

Unlike preretirees that stayed the course, the small percentage of preretirees (1.6%) who abandoned equities in reaction to market volatility in either late 2008 or early 2009 and never rebalanced experienced much more modest growth. Their balance grew 25.9% over the same time period with balances reaching $101,000 by the end of the first quarter from $80,200 at the end of the first quarter 2009.

“There is a valuable lesson to be learned from the minority of preretirees who abandoned equities altogether and experienced significantly less progress,” said MacDonald. “It underscores the combined importance of a proper asset allocation and savings behavior as they planned for retirement within all that life entails.”

Thompson added, “At the end of 2008 and into 2009, some participants got nervous and took all their money out of equities, never going back. When we looked at those accounts at the end of the first quarter of 2013, we found that the growth rate of those 401(k) accounts was only 15%. However, for those that stayed in equities, from the end of 2008 through the first quarter of 2013, experienced 88% growth in their account balances.”

There was also a third category of participants, she said, who initially pulled their money out of equities in 2008 or early 2009, but who came back into equities at some point during the last four years and experienced a growth rate of 50%.

“I think that what all this shows is the importance of diversification in your portfolio,” said Thompson. “The results bear out it that it’s better to ride out the storm and make sure that you’re in the market as the market rises.”

According to the Fidelity analysis, nearly two-thirds (65%) of the overall average balance increase over the past year was due to gains in equities, though just as important were the continued contributions made by both the employee and employer, accounting for one-third of the increase in account balance.

In addition to maintaining a diversified asset allocation, Fidelity figures showed that preretirees contributed an average of 10.3% of their annual salaries in their 401(k) accounts during the first quarter—more than two percentage points higher than the average 8% percent for all workers. These contributions, combined with a preretirees’ average employer contribution of 4.5%, brought their average total contribution rate to 14.8%.

“We also recommend that participants review their accounts at least once a year to see if they need to adjust either their risk tolerance level or their target date for retirement,” said Thompson. “They should make sure that their portfolio is in line with their risk level or retirement date.”

Furthermore, figures from Fidelity showed that 14.4% of preretirees made catch-up contributions during the first quarter. Employees can make catch-up contributions beginning at age 50 of up to $5,500 per year to their 401(k) accounts, which the IRS permits once they have reached their 402(g) limit of $17,500 for 2013.

Thompson pointed out that saving a little extra over the long term can make a big difference upon retirement. “When we looked at savings rates by employees for retirement, we followed two people who were alike in many ways their age, salary, and asset allocation were similar and both had the same in employer contributions. However, during the past 12 years, one deferred 4% to their 401(k), while the other deferred 12%. After 12 years, the balance of the employee who deferred 12% is 2.5 times larger than the employee who deferred only 4%.”

CUIT Opportunistic Bond Fund Launched

May 24, 2013 (PLANSPONSOR) – Christian Brothers Investment Services (CBIS) has launched the CUIT Opportunistic Bond Fund (OBF).

The new commingled fixed-income fund is available for tax-exempt Catholic institutions and was created to help investors navigate a potentially volatile interest-rate environment.

The fund attempts to mitigate potential interest-rate risk by utilizing more flexible investment strategies and following a shorter-duration benchmark. The fund, which provides daily liquidity and net asset value, launched with $77 million in assets under management on May 1, 2013. As with all CBIS funds, the OBF adheres to CBIS’ socially responsible investing criteria.

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“While we cannot predict exactly when interest rates will begin to rise from today’s low absolute levels, a rate increase brought on by inflation appears to be a likely outcome of the ongoing sovereign and private debt burdens,” said Frank D. Haines, CFA, vice president and chief investment officer of CBIS. “The CUIT Opportunistic Bond Fund is a valuable option because we believe it allows investors to maintain their fixed-income allocation without sacrificing performance if current interest-rate levels remain in effect for an extended period of time, while providing protection if and when rates start to rise.”

The OBF’s sub-advisers, Longfellow Investment Management and Reams Asset Management, will look to achieve the fund’s objectives by primarily investing in U.S. government, agency, corporate, and mortgage- and asset-backed securities. Below-investment-grade debt securities may compose up to 20% of the OBF portfolio, allowing the sub-advisers to augment returns through high-yield investments. OBF’s investment strategy also involves use of derivatives, which can reduce trading costs and capitalize on potential changes in investment-grade and high-yield bond credit spreads and the yield curve.

The fund will utilize the Barclays Capital U.S. 1-5 Year Government Credit Index, which has a relatively short duration (approximately two-and-a-half to three years). The shorter benchmark duration reduces OBF’s negative price sensitivity to rising interest rates, and has a more stable duration than benchmarks that incorporate the mortgage-backed securities sector.

“The fact that we raised $77 million for OBF since January of this year shows that Catholic institutions are concerned about the effect of potential hikes in interest rates on their portfolios,” said Haines. “We are confident that the proven strategies utilized by Longfellow and Reams, which emphasize credit analysis and capturing opportunities through tactical trading, will help to shelter fixed-income portfolios from the downside of any future interest-rate hikes without sacrificing returns in the current environment.”

Christian Brothers Investment Services, Inc. is a leader in Catholic socially responsible investing with approximately $4.7 billion in assets under management for Catholic institutions worldwide, including dioceses, religious institutes, educational institutions and health care organizations. 

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