Market Moves the Needle on 401(k)s, Not Workers
Americans with savings in retirement plans have something to celebrate: Average 401(k) account balances rose 10 percent in 2012, to $86,212, according to mutual fund company Vanguard Group.
But only 11 percent of retirement plan participants saved the maximum of $17,000 ($22,500 for those over 50), and they tended to be older, male, high-income workers with already high account balances, said Vanguard, one of the largest retirement plan providers, with $2 trillion in mutual fund assets.
The average contribution rate in 401(k) plans, which grow tax-free until withdrawal, remained steady during the period, at 10.5 percent, according to Vanguard's 2013 How America Saves report.
Positive market returns in 2012 helped boost balances in the accounts, with the S&P 500 up 13 percent last year. However, account contributions have also grown since 2006, up to $4,845 per employee in 2012 from $4,402 in 2006, according to Vanguard's annual study of more than 3 million participants.
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More retirement plan participants than ever are leaning on professionally managed investment options, Vanguard's data show. Thirty-six percent are invested in either a target-date fund, a balanced fund or a managed account advisory program, in which investments are selected and rebalanced without the participant having to take any action. Vanguard expects this number will rise to 55 percent by 2017.
Seventeen percent of assets were in target-date funds, which have investment plans geared toward a specific retirement date. That was up from 14 percent in 2011 and 3 percent in 2006, the first year these funds gained traction.
As target-date funds gain favor, investors are moving away from holding their own employer's stock. Those holdings were only 9 percent of invested assets at the end of last year, Vanguard said, down from 10 percent in 2006.
Diversified equity funds made up the bulk of accounts at 40 percent, for an overall equity allocation of 66 percent. Cash accounted for 15 percent of investors' portfolios. In 2006, by contrast, participants had 23 percent in cash.
Bonds accounted for 10 percent and other balanced funds for 9 percent.
There was a 3 percent decline in new loans against 401(k)s in 2012. Overall, 18 percent of investors had loans outstanding, with the average balance at $9,000, Vanguard said.