Deals & People August 20, 2010

McColgan Joins Primerica Board of Directors

Ellyn McColgan, the former head of wealth management at Morgan Stanley, has joined the board of financial services firm Primerica Inc., according to a recent announcement.  
Reported by

McColgan left her position as president and COO of the global wealth management group at Morgan Stanley in January 2009 before the group merged with Smith Barney, a unit of Citigroup Inc. (see “McColgan To Exit Morgan Stanley.”)  

Before Morgan Stanley, McColgan held a lengthy tenure at Fidelity Investments between 1990 and 2007 that ended as President of Distribution and Operations (see “Ex-Fidelity Exec Named To Lead Morgan Stanley Global Wealth Management.”)  

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McColgan earned a BA, summa cum laude, in Psychology and Social Studies Education from Montclair State University, as well as an MBA from Harvard Business School.  

Primerica, which offers life insurance and legal services in the U.S. and internationally, was spun off from its former parent Citigroup following a public offering this April.  

Data & Research August 20, 2010

Fidelity Finds Q2 Uptick in 401(k) Withdrawals

A new analysis finds indicates that while many 401(k) participants continue to stay the course, they’re also pulling more money out of those plans.
Reported by

The latest quarterly data from Fidelity Investments found that while the majority of 401(k) participants continued to save during the quarter, the percentage of participants either initiating a loan or a hardship withdrawal increased – albeit not by much.

In fact, a more troubling trend might lie in the fact that nearly half (45%) of participants who took hardship withdrawals one year prior also took a hardship withdrawal in the 12 month period ending in the second quarter of this year.  

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Loan Initiations

Loans initiated over the past 12 months grew to 11% of total active participants from about 9% one year prior. The portion of participants with loans outstanding also increased two full percentage points in the second quarter to 22%.  The average initial loan amount as of the end of the second quarter was $8,650 with an average loan duration of three and half years, according to Fidelity.

“We recognize that for some, taking a loan or a hardship withdrawal from their 401(k) may be their only option because it’s their only form of savings,” said MacDonald. “However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement.”

According to Fidelity’s data, 62,000 of the participants recordkept by the firm initiated a hardship withdrawal in the second quarter, compared to 45,000 participants who did so the quarter before.  As of the end of Q2, 2.2% of Fidelity’s active participants took a hardship withdrawal, compared with 2.0% a year earlier. 

The uptick in withdrawals runs counter to other recent industry surveys suggesting that that activity was slowing (see DC Participants Show Stronger Commitment to Saving, 2009 a Good Year for DC Participants – Considering…), though the Fidelity report was based on more current data, and could be an indicator of the continued weakness in the U.S. economy. 

Fidelity said that the average age of those taking a loan or hardship withdrawal is between 35 and 55 years old, when it says that “individuals often have to deal with multiple, competing, financial challenges”.

Deferrals Steady

Those trends notwithstanding – and by some measure they aren’t that far afield from historical norms for withdrawals and loans – Fidelity notes that the average 401(k) account balance as of the end of the second quarter was $61,800, up 15% from the same time last year, though down from the end of the first quarter of 2010. The average deferral rate held steady at about 8%, and one-in-three (32%) participants were deferring at a rate of 10% or higher.  And, similar to the first quarter, more participants increased their deferrals (5.3%) than decreased (2.9%) in the most recent quarter.

Additionally, at least one study has found a cyclical trend in withdrawal volumes, with a peak occurring just ahead of fall tuition payments (see Vanguard DC Plans See Significant Hardship Withdrawal Hike). 

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