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Weekly News – Week of June 14, 2010.
DC plan account balances as of year-end 2009 have improved, Mercer finds
As of the end of 2009, almost 70% of defined contribution (DC) plan participant account balances have returned to levels that existed before the stock market declines of 2008 and early 2009, according to a recent Mercer survey. Mercer described these gains as dramatic when compared with the year-end 2008 percentage (36%) of participants whose account balances were at 2007 levels. Mercer noted, however, that 16% of participants below age 30 and 36% of participants age 55 or older have not seen their account balances return to their 2007 levels.
The data came from a survey of 1.2 million participants for whom Mercer administers defined contribution plans. When Mercer compared year-end 2007 with year-end 2009, it found that participants below age 30 had an average account balance increase of 81%. However, there was a 2% decline in average account balances for participants age 55 and older. Mercer attributed this difference in part to the following factors:
- Younger workers (generally with smaller account balances) commonly experienced a greater impact from making ongoing account contributions;
- Most participants age 55 and older who realized a gain in their accounts typically had smaller account balances;
- 7% of participants age 55 and older lost more that 30% of their account value; and
- Close to 50% of participants age 55 and older who lost more than 30% of their account balances took a withdrawal from their accounts.
“While the improvement in account balances is certainly encouraging, many participants have essentially lost two years in accumulating retirement savings,” said Dave Tolve, retirement business leader for Mercer’s outsourcing business. “For those closest to retirement, these lost years are particularly troubling given that most experts agree this group lacked adequate retirement savings even before the market downturn and now have that much less time to recover.”
Increased participant contributions
Mercer also found that participants have steadily increased their contributions every month since June 2009 (when the average contribution rate reached a low of 6.83%). At the end of 2009, the average participant before-tax contribution rate was 6.86%. However, Mercer noted that contribution rates are still below 2008 and 2007 year-end levels (6.96% and 7.46%, respectively).
Mercer press release
