401(k) savings are on the rise

By Christine Dugas, USA TODAY
Updated 18m ago |

After being hammered by the stock market crash, job losses and the recession, 401(k) plans are on a major upswing, with balances reaching a 12-year high, according to Fidelity Investments, the nation's largest plan provider.

"It is encouraging to see that people are saving more, but the reality is that they still have a ways to go," says Lori Lucas, defined contribution practice leader at Callan Associates, an investment consulting firm.

At the end of the first quarter, the average 401(k) balance hit $74,900, a 12% jump from a year ago. That marks the highest level since Fidelity started tracking account balances at the end of 1998. Account balances had plummeted to $41,300 in the third quarter of 2002.

The change not only reflects market gains but participants also increased their contributions by 3.5% in the first quarter, says Beth McHugh, Fidelity's vice president of market insights.

In March, TIAA-CREFF, the second-largest plan provider, also saw an increase in retirement account balances, up 7.4% over a year ago. And ING, a large provider of benefits plans, says that over the past two years its average retirement account balance has increased 38%.

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The increase in 401(k) savings does not dispel retirement worries. Half of all workers are not very confident about their retirement future, according to the Employee Benefit Research Institute 2011 Retirement Confidence Survey. That's no wonder, considering that 56% of workers say that they have saved less than $25,000.

Many Americans had to tap into their retirement savings when times got tough. In the first quarter, 22.1% of 401(k) plan participants had a loan outstanding, down slightlyfrom 22.5% in 2010, Fidelity says.

In recent years, there have been efforts to boost 401(k) plan participation.

Many more companies automatically enroll employees, but most of them have opted for a 3% savings rate when most plan sponsors believe that workers need at least 10% or more of their earnings for retirement savings, a recent survey by the Defined Contribution Institutional Investment Association found.

Although the recession caused companies to stop making contributions to 401(k) participant plans, many have reinstated them or plan to do so, McHugh says. And more employers are urging workers to take advantage of company matching contributions, she says.

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