Younger 401(k) Participants Saw Account Balance Hike in Downturn

Younger participants with fewer years on the job have fared reasonably well with their 401(k) accounts during the economic downturn compared with their older colleagues who have not been nearly so lucky.

That was according to the latest data released by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) that have been collaborating since 1996 on a 401(k) database, according to a news release.

EBRI/ICI data show that participants up to 35 years old (as of 2006) who had one to five years on the job saw an average account balance increase of 35% between January 1, 2007, and November 26, 2008. Those with between six and 10 years were only up slightly, while those with 11 to 20 years on the job lost an average of approximately 6%.

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The biggest losers, according to the EBRI/IRC data, were those age 36 to 45 with 21 to 30 years on the job who saw an average setback of 15% in their 401(k) balances in the January 1, 2007, to November 26 period. Those with 11 to 20 years on the job in the same age group suffered an approximate 11% average balance decline.

Among older participants, the EBRI/ICI data showed that workers with 21 to 30 years on the job who are 56 to 65 years old saw an average 401(k) balance decline of about 11%.

The EBRI/ICI data is available here.

Advisers Say Sponsors Need Better Eye for Target-Date Funds

Three-fourths of financial advisers polled in a new JPMorgan Funds-sponsored survey said that when evaluating target-date fund options, plan sponsors lack clear and objective criteria for selecting the most appropriate fund.

Seventy-six percent of advisers surveyed said they believe plan sponsors only sometimes, rarely, or never recognize the differences in glide paths among target-date funds, requiring them to spend more time educating plan sponsors on these significant differences, according to a JPMorgan Funds press release. The disclaimer is that JPMorgan unveiled a product in September to help advisers and sponsors choose the right target-date offering (see JPMorgan Announces Target-Date Evaluation Product).

Advisers said plan sponsors’ biggest mistake was “focusing too much on fees and not on other factors that could affect participant outcomes,” followed by “choosing a target-date fund offered by their recordkeeper without considering other options.” (see Target Dates Surge, but Questions Linger). Other key survey findings, according to JP Morgan, include:

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  • 76% of advisers said it was extremely or very important to consider strategies that incorporate broad diversification of asset classes;
  • 67% said it was extremely or very important to manage volatility in the five to 10 years prior to retirement;
  • 61% said plan sponsors’ objective was to meet income replacement goals at retirement versus 39% who said plans seek to maximize participants’ lifetime savings.

“Considering the dramatic differences between target-date funds and their status as a critical retirement savings tool, it is clearly important for plan sponsors to understand and consider all criteria when choosing a fund,’ said David Musto, managing director of JPMorgan Funds, in the press release.

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