401k Balances Rise By A Third in 2009

Americans are still reeling from the blows their 401(k) account balances took during the economic crisis, but they may be happy (and surprised) to learn that account balances jumped 31.9 percent last year after taking a 27.8 percent dive in 2008.

Americans are still reeling from the blows their 401(k) account balances took during the economic crisis, but they may be happy (and surprised) to learn that account balances jumped 31.9 percent last year after taking a 27.8 percent dive in 2008.

According to a recent report released by the Employee Benefit Research Institute and the Investment Company Institute, all plan participants in their database had an average account balance of $58,351 at the end of 2009, up from an average of $45,519 in 2008. The median account balance was $17,794, compared to $12,655 in 2008.

The report, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2009, is based on a database of 20.7 million participants at year-end 2009. This includes 4.3 million “consistent” participants, or those who have held the same plan from the end of 2003 through 2009.

The change in average balances reflects new contributions and total investment return as well as withdrawals, borrowing, and loan repayments, said the EBRI and ICI. The researchers did not isolate how much of the change was due to each factor, said Jack VanDerhei, research direction at EBRI.

The increase in average balances comes despite an increase in loan activity in 2009. Of those plan participants eligible for loans, 21 percent had a loan outstanding against their 401(k) account in 2009, up from 18 percent in 2008 and 2007. In 2009, 89 percent of participants were in plans that offered loans.

The implementation of the Pension Protection Act of 2006 may also have played a role in the changes. Under the Act, companies can automatically enroll employees in their 401(k) plans unless the employees opt out. As a result, many employers are now automatically enrolling their participants.

Account balances and loan activity were not the only changes in 2009. Interest in balance funds, including target-date funds, rose among new or recent hires in their 20s, with 42 percent of their account balances invested in these funds. In 2008, 36 percent of these participants were invested in balanced funds.

“These participants are reaching for diversification as well as the automatic rebalancing of their accounts over time,” said Sarah Holden, ICI senior director of retirement and investor research, during a webinar.

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