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401(k) Balances Up, but ‘Lost Years’ Still Troubling
Contribution rates still below pre-financial crisis levels

By Stephen Miller  3/10/2010
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As of year-end 2009, nearly 70 percent of U.S. defined contribution participant balances had returned to levels prior to the stock market declines of 2008 and early 2009. These gains mark a dramatic improvement compared to year-end 2008—the height of the economic and market turmoil.

However, 16 percent of participants below age 30, and 36 percent of those ages 55 and older, had yet to return their account balances to 2007 levels, according to HR consultancy Mercer (see table 1). Mercer’s data comes from a survey of 1.2 million participants for whom it administers 401(k) and other defined contribution retirement savings plans.

Table 1. On the Mend
Percentage of participants with balances below 2007 levels


Year-end 2007 vs.
Year-end 2008

Year-end 2007 vs.
Year-end 2009

All participants



Under age 30



Ages 55 and older



Source: Mercer

Comparing year-end 2007 with year-end 2009, participants under age 30 have seen an average account balance increase of 81 percent, compared to a 2 percent average account balance decline for participants ages 55 and older. This discrepancy is partially attributed to the fact that:

Younger participants, generally with smaller account balances, typically saw a greater impact from making ongoing account contributions.

The majority of participants ages 55 and older who realized a gain in their account generally had small account balances.

7 percent of participants ages 55 and older lost more than 30 percent of their account value.

Nearly 50 percent of the participants ages 55 and older who lost more than 30 percent of their account value took a withdrawal from their account.

“While the improvement in account balances is certainly encouraging, many participants have essentially lost two years in accumulating retirement savings,” says Dave Tolve, retirement business leader for Mercer’s outsourcing business. “For those closest to retirement, these lost years are particularly troubling given that most experts agree this group lacked adequate retirement savings even before the market downturn and now have that much less time to recover.”

Confidence Returns, Slowly

Along with the market improvements experienced in 2009, participants seemed to regain some confidence and have increased their contributions steadily every month since June 2009, when the average contribution rate reached a low of 6.83 percent of salary. This rising contribution level, which ended 2009 at an average participant before-tax contribution rate of 6.86 percent, was tempered by the fact that contribution rates remain below 2008 and 2007 year-end levels (see table 2).

Table 2. Inching Back Up
Average participant before-tax contribution rates (percentage of salary deferral)


As of Year-end 2009

As of Year-end 2008

As of Year-end 2007

All participants




Under age 30




Ages 55 and older




Source: Mercer

Increasing contribution rates is one of the main tactics participants can use to try to bolster account balances, particularly those with decades ahead of them before retirement and those whose employers provide some type of matching contribution.

“Many of our plan sponsor clients and their participants gave a collective sigh of relief at the end of 2009, given the dire outlook at the beginning of the year,” says Tolve. “We should keep in mind, however, that 'better than feared' is not the same as plan participants being financially prepared for retirement. Now more than ever, plan sponsors need to work with their administration providers to clearly communicate the benefits of saving for retirement and the many resources available to help them do so.”

Stephen Miller is an online editor/manager for SHRM.

Related Articles:

Target-Date Funds Bounce Back in Retirement Plans, SHRM Online Benefits Discipline, March 2010

Most Companies to Restore 401(k) Match in 2010; Other Steps, SHRM Online Benefits Discipline, February 2010

Helping 401(k) Participants Pays Off, SHRM Online Benefits Discipline, February 2010

Defined Benefit Plans Outperformed 401(k) Plans During Bull and Bear Markets, SHRM Online Benefits Discipline, February 2010

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