Data & Research February 17, 2010

Fidelity Says Participant Balances Gained Good Ground in 2009

Fidelity Investments' 401(k) highlights from 2009 showed that many participants recouped much of their losses from 2008.
Reported by

Average 401(k) account balances of participants in plans recordkept by Fidelity ended the year at $64,200, up another 5.7% from the end of the third quarter and up 28% for the year, according to a news release. The median one-year personal rate of return in 2009 was nearly 27%. By comparison, during the same time period, the S&P 500 had a total return of 26%, Fidelity noted.

Fidelity also reported the average participant deferral rate remained relatively flat for the year at about 8.2%, but the fourth quarter saw the continuation of a positive trend of more participants electing to increase their deferral rates than decrease them. “The good news is that many workers, in spite of the economy, chose to save in their 401(k)s throughout 2009, and as the markets recovered, so did many Americans’ account balances,” said Jim MacDonald, president of Workplace Investing at Fidelity Investments, in the release.

Long-Term Savings

An analysis of employed participants with a Fidelity 401(k) plan for the past 10 years (1999 to 2009) showed their account balance increased nearly 150% to $163,900 at the end of 2009 from $65,800 at the end of 1999. Fidelity said the increase in balance was due to continued participant and employer contributions, dollar-cost averaging, and market returns. The analysis also showed that these continuous participants had a median age of 51 years with a deferral rate of 10.4%. 

The longer-term analysis also found that for many participants who took higher risk with their asset allocation as compared to age-based target retirement date funds, the past 10-year period did not result in higher returns. Analysis of participants with 10-year personal rates of return showed that 65% of them took higher risk than the corresponding age-based Freedom Fund, which was assigned assuming a retirement age of 65. Of that higher risk group, nearly seven out of 10 (69%) showed a lower return than their age-based funds over the course of the decade.
Improved Diversification

The longer-term analysis shows participants are doing a better job of diversifying their portfolios. In 2000, participants on average directed more than 80% of their new contribution dollars into equities, but participants were contributing less than 70% to equities by the end of 2009. The percentage of participants contributing 100% to equities also dropped considerably during that same time period to 19% in 2009 from 47% in 2000.

In addition, contributions made to blended funds, which include both age-based target-date funds and balanced funds, nearly tripled from 9% in 2000 to 26% in 2009.

Fidelity attributes the trend toward diversification to participant education as well as continued employer adoption of target-date funds as the default fund. As of the end of 2009, nearly two-thirds (65%) of plan sponsors in Fidelity’s plans utilized target-date funds as their default investment option.

Finally, Fidelity found participant usage of guidance tools was up over 62% in 2009 when compared to 2008.

Fidelity provides recordkeeping services for more than 19,000 defined contribution plans for more than 14 million participants.

Compliance February 17, 2010

Hartford Agrees to $13.8M Revenue-Sharing Case Settlement

The Hartford Life Insurance Co. will pay $13.8 million to settle a four-year-old fiduciary breach suit over revenue-sharing payments from mutual fund companies.
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Lawyers for Phones Plus Inc. have asked U.S. District Judge Alfred V. Covello of the U.S. District Court for the District of Connecticut to approve the settlement.

On behalf of its 401(k) plan, Phones Plus Inc. sued Hartford and investment firm Neuberger Berman Management Inc. in 2006, alleging that Hartford’s receipt of revenue-sharing payments from mutual funds based on a percentage of plan assets invested in those funds violated the Employee Retirement Income Security Act (ERISA). Phones Plus alleged that Neuberger committed an ERISA breach by not properly informing the plan of the revenue-sharing arrangement.

The request submitted to Covello said if the settlement pact is approved, all 401(k) plans using Hartford as a service provider between November 2003 and the date of the settlement approval would share in the settlement proceeds.

In addition to the fine, Hartford agreed to change several business practices, including:

  • taking provisions out of plan documents limiting a plan’s selection of investment options;
  • not enforcing provisions allowing it to invest plan assets in short-term money-market instruments, cash, or cash equivalents;
  • asking state insurance regulators for the OK to change parts of its group annuity contract dealing with mutual fund availability to clarify that Hartford will not take out or substitute an investment option chosen by a plan, unless the option is no longer available;
  • adding language to its plan disclosures to make clear that the fund options offered in the plan submit revenue sharing payments to Hartford or its affiliates; and
  • giving plans a list of investment options with revenue sharing amounts paid by each.


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