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Confidence and Account Balances on the Rise, Workers Increasing Contributions in 2004
BOSTON, Mass., December 3, 2003 - Fidelity Investments' Building Futures IV report on trends in defined contribution plans revealed that despite last year's difficult economic climate, workplace savings plans continued to be the retirement savings vehicle of choice with nearly 70 percent of American workers participating in 401(k)s and contributing seven percent of their wages.
Fidelity's in-depth report, which is based on an analysis of data from its 10,000 defined contribution plans with $361 billion in assets and more than eight million participants, also revealed that workers are demonstrating age-appropriate investing and sticking to long-term strategies, not reacting to market volatility. These investing practices helped participants amass an average account balance of $44,000 at the end of 2002. However, a more favorable stock market this year, Fidelity reported that the average account balance is about $51,500 as of October 2003.
Plan participants seem to be responding favorably to the stock market's performance this year. According to a November phone poll of participants who call Fidelity, 82 percent of workers intend to either increase or maintain the same contribution levels in 2004 and the majority (68 percent) is confident that they will have enough money saved to meet their retirement needs.
"Overall, the trends detailed in Building Futures underscore that America's defined contribution system is performing well and meeting its intended goal of helping workers save for retirement through the workplace," said Kathryn Hopkins, executive vice president, Fidelity Institutional Retirement Services Company, the nation's largest provider of 401(k) plans. "Participation levels remain high and eligible workers have not backed away from their steady contribution levels over the years, which are two important measures of the health of the system."
Investor Confidence Rising
The market upturn is also reinvigorating investor confidence. Fidelity's recent phone poll found that 75 percent of plan participants are satisfied with the overall return in their 401(k) plan this year and compared to a year ago, more than half are as or more certain about how and where to invest their 401(k) contributions. Additionally, nearly 75 percent are confident that their current investments will provide solid returns for their retirement.
"Participants are sticking to long-term investing strategies, which reflects their confidence that defined contribution plans will help them reach their retirement savings goals," said Hopkins. "In addition to staying focused on their long-term plan, employees should also make sure they are maximizing all workplace savings opportunities, such as contributing the maximum to their 401(k), participating in the company match program and, for those 50 years of age and older, taking advantage of additional catch-up provisions."
Age-Appropriate Investing
The Building Futures report also examined how workers invest their retirement savings and revealed that the majority favored the domestic equity asset class, which holds close to 40 percent of assets from the nearly 10,000 defined contribution plans.
Participants also understand the benefits of asset allocation and demonstrate age-appropriate investing, with the majority of older workers investing in more conservative options and younger employees preferring equities.
However, diversification continues to remain a challenge for some workers. One quarter of participants held only one investment option in their plan and, of those, only 16 percent were invested in a "blended" fund, such as a balanced or age-based fund.
"While American workers have been very good at participating in their 401(k), we believe they can be more effective maintaining a diversified plan that is not heavily weighted in one area, such as equities or fixed-income investments," said Hopkins. "Participants can take the guesswork out of balancing their assets by changing their default investment option to an age-appropriate fund that is invested based on a predetermined schedule that becomes more conservative as the target retirement date approaches, such as Fidelity Freedom Funds."
Plan Sponsor Trends
The report also revealed interesting trends among plan sponsors, most notably around the removal or lifting of company stock restrictions. The number of plans with company stock and a company match that required the match to be invested in company stock decreased from 48 percent to 35 percent in 2002. Additionally, more than 20 percent of large plan sponsors with company stock reduced or removed restrictions on exchanging out of company stock; while more than 40 percent are considering reducing or removing these restrictions in 2004.
"Consitent with the previous year, removing company stock restrictions is a finding we observed again in the 2002 data," said Hopkins. "In an effort to provide participants with the most successful diversification strategies, plan sponsors are continuing to adjust their plans and remove restrictions around company stock."
The report also revealed that nearly 90 percent of sponsors are taking advantage of new legislation by adopting catch-up provisions made available through the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
About the Research
Fidelity compiled the 79-page "Building Futures Volume IV" report based on a comprehensive analysis of 2002 data for 8.1 million participants in nearly 10,000 plans serviced by Fidelity Institutional Retirement Services Company. For the first time, the report is available exclusively online at http://buildingfutures.fidelity.com. The phone survey was administered to 498 participants in Fidelity defined contribution plans who called Fidelity November 14 - 25, 2003.
About Fidelity Workplace ServicesSM
Through Fidelity Workplace ServicesSM, Fidelity Investments provides human resources administration and employee benefits solutions to more than 16.5 million participants in more than 11,600 retirement, pension, health and welfare, payroll and stock plans as of October 31, 2003.
Fidelity Investments
Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of $1.7 trillion, including managed assets of $940.3 billion as of October 31, 2003. Fidelity offers investment management, retirement planning, brokerage, human resources and benefits outsourcing services to 18 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. For more information about Fidelity Investments, visit www.Fidelity.com.
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For more information about mutual funds available through Fidelity, including fees and expenses, please call or write Fidelity for free prospectuses. Please read them carefully before you invest.
The Freedom Funds are managed by Strategic Advisors, Inc., a subsidiary or FMR Co.
Diversification does not ensure a profit or guarantee against loss in a declining market.
Past performance is no guarantee of future results.
Fidelity Investments Institutional Services Company, Inc., 82 Devonshire Street, Boston, MA 02109
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