Solid market returns drove nationwide growth in 401(k) balances last year, though not every state enjoyed the same level of success, according to a study by Judy Diamond Associates.
“Although balances were up across the board, the increases were not evenly distributed,” said Eric Ryles, managing director of Judy Diamond Associates. “There are very real differences in the best and worst states, with the top performer … though the majority of states were fairly well grouped into two clusters of roughly 11 percent and 12 percent.”
The analysis compared average 401(k) account balances per participant in active plans in each state in 2011 and 2012, the most recent two years for which data is available.
Nationwide, the average was $75,997 in 2012, up from $68,353 in 2011, or an 11 percent increase.
While overall growth was up for the 470,000 plans included in the study, driven by strong market performance, that growth was tempered by declines in employer and employee contributions.
Although 401(k) growth rates were generally below the rate of return for the S&P, which was 15.83 percent in fiscal year 2012, Ryles explained that is not a cause for concern.
“A well-designed 401(k) will offer a menu of options suitable for investors of all ages,” he said. “Participants with the highest balances, usually those getting close to retirement, should be focused more on capital preservation rather than capital growth. This means that they are in bond funds and stable value funds, which will inevitably underperform a benchmark like the S&P, but do so safely. The overall rate of return of the plan is limited as a result.”
Here, then – in asscending order - are the top 10 states for growth in average 401(k) account balance per participant:
10. Missouri: Retirement plan participants in Missouri saw their 401(k) account balances rise 12.68 percent from $68,071 in 2011 to $76,704 in 2012.
9. Kansas: The average 401(k) account balance for workers in Kansas rose 12.69 percent from $62,322 in 2011 to $70,233 in 2012, according to Judy Diamond Associates.
8. Arizona: Arizonans with 401(k) retirement plan accounts saw their account balances increase 12.91 percent from $59,328 in 2011 to $66,987 in 2012.
7. Rhode Island: Defined contribution plan participants in Rhode Island saw their 401(k) account balances jump an average 13.30 percent from $79,331 in 2011 to $89,886 in 2012
6. Alaska: The average 401(k) account balance for Alaskan retirement plan participants was $68,528 in 2011, compared to $77,748 in 2012, a 13.45 percent increase.
5. Idaho: Plan participants in Idaho saw their 401(k) account balances rise by 13.74 percent from $62,006 in 2011 to $70,528 in 2012
4. Oklahoma: The average 401(k) account balance in 2011 was $61,339, compared to $70,381 in 2012, a 14.74 percent increase.
3. Wyoming: The average 401(k) account balance for plan participants in Wyoming in 2011 was $63,516, compared to $73,798 in 2012, a 16.19 percent increase.
2. Maryland: Defined contribution plan participants in Maryland saw their 401(k) account balances jump an average of 14.50 percent from $66,646 in 2011 to $76,312 in 2012.
1. Montana: The average 401(k) account balance in 2011 was $70,835, compared to $82,358 in 2012, representing a 16.27 percent increase year-over-year.
Judy Diamond Associates, a provider of sales prospecting and plan analysis tools for benefits brokers, financial advisors, plan providers and carriers serving the employee benefits and retirement markets, based its research for this report on the most recent 401(k) plan disclosure documents released by the U.S. Department of Labor.