WASHINGTON – People recently hired in 2006 continued to shy away from investing in company stock as part of their retirement savings, favoring instead more diverse mutual funds that balance risk over time, according to an annual study of 401(k) accounts.
The Employee Benefit Research Institute and the Investment Company Institute found that the share of company-sponsored 401(k) accounts invested in company stock fell by 2 percentage points last year to 11 percent. That continues a decline that started in 1999, when company stock accounted for 19 percent of workers’ retirement savings.
The study also found that the average amount saved in a company-sponsored 401(k) account rose by 17 percent in 2006, the fourth straight year of growth. Since 1999, workers who contributed to these accounts saw their average savings grow by 79 percent to $121,202 – despite the market downturn between 2000 and 2002.
EBRI, a nonprofit research center, and ICI, a trade association of mutual fund companies, analyzed a database that includes statistics on 20 million 401(k) participants in nearly 54,000 employer-sponsored plans.
Named for a section of the tax code, 401(k) plans allow participants to set aside pretax money for use in retirement and employers often match some of the contributions.
Sarah Holden, a senior economist in ICI’s research department and co-author of the report, said participants are increasingly seeking to diversify their investments.
At year-end, 24 percent of the account balances of recent hires in their 20s were invested in balanced funds, like mutual funds, compared with 19 percent in 2005. That figure stood at 7 percent in 1998. About half of new hires invested in balanced funds last year compared with 27 percent in 1998.
Sheena Iyengar, a professor of management at the Columbia University Graduate School of Business, said she is “encouraged by the news. They should be diversifying,” especially after corporate scandals at Enron Corp. and elsewhere drained many employees’ retirement accounts.
Companies today increasingly are making accounts that automatically reallocate investments over time – lowering the level of risk as workers gets older – the default choice for their employees and the report illustrates that change is working, Iyengar said.
In 2006, 18 percent of participants eligible for loans took one against their 401(k) account, which compared with 19 percent in 2005 and 18 percent in both 1996 and 2000. Most loans last year tended to be small, averaging 12 percent of the remaining account balance, according to the report.
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