There is some interesting data just released by the Employee Benefit Research Institute that we all might apply to our practice when dealing with retirement matters. This is a test:
One of the critical issues would be participation levels within the average defined-contribution plan.
Question 1) Of all full-time eligible wage and salaried workers, what percent actually participates in their company-sponsored retirement plan?
- 50 percent
- 70 percent
- 65 percent
- Less than 55 percent
And the answer is: just under 55 percent.
Survey results indicate that in the last market decline, (2000-2002) participation declined through 2006 before stabilizing in 2007 and slipping ever so slightly in 2008.
So, perhaps we should consider holding more educational meetings with all eligible employees reminding them that some day they will be faced with retirement and should begin participating sooner.
Or, we could propose to our plan sponsor the possibility of automatic enrollment or even adding a safe harbour component to their existing plan.
Question 2) Of those eligible employees who actually participate in a qualified retirement plan, which age grouping has the highest level of enrollment?
- Ages 25-35
- 35-45
- 40-50
- 54-64
And the answer is: those in the 54-64 bracket.
Nearly 63 percent of those eligible participate in a qualified plan; and the same survey indicates those in the 21-to-24 age group participate least at less than 30 percent.
So, perhaps we should concentrate our enrollment efforts on the younger age groups illustrating how a comparatively small sum deferred annually can grow impressively over time.
Question 3) Do men or women have a higher participation level in their company-sponsored retirement plan?
And the answer is: women.
According to the study, women had a greater percentage of participation in their plan (56.7 percent) than men (53.7 percent).
Question 4) The majority of 401(k) invested assets are concentrated in:
- Stocks
- Bonds
And the answer is: stocks.
More than 55 percent of 401(k) assets reside in stocks/equity while 41 percent are positioned in bonds/fixed income.
And those numbers would seemingly suggest that we should incorporate into our discussions with and presentations to both participants and plan sponsors the need for diversification so as to (theoretically) avoid the probability of large losses.
Question 5) In 2008, the average 401(k) individual account balance declined by:
- 20 percent
- 24.3 percent
- 30 percent
- 50 percent
And the answer is: 24.3 percent.
In part, this decline might be attributable to the lack of diversification (see question 4) within the offering of investment choices within the plan. Since it is, with the exception of 1929 and 2008, rare that both stock and bond markets melt down concurrently, perhaps we should offer a greater degree of diversification to our plan sponsors and participants.
Question 6) While there was an overall decline in the average 401(k) account balance in 2008, for the period beginning on Jan. 1, 2003 and ending on Dec. 31, 2008, the average 401(k) annual account was:
- Down 5 percent
- Up 7 percent
- Stayed the same
And the answer is: up 7.2 percent for the period.
This performance number would suggest that timing the market doesn't payoff while time in the market does. So perhaps we should remind both our plan participants and plan participants that patience is also a form of action.
