Average 401(k) Account Has $69,000: Hewitt Study

The average number of mutual funds held by participants increased to 4.2 funds, from 3.6 in 2002. The number of employees holding just one or two asset classes declined to 32% from 39% in 2002, a fact that suggests some employers are having success in their efforts to encourage diversification, Hewitt says.

One troubling finding: Employees invested an average of around 27% of their total balance in their own company's stock in 2004. And about 27% of employees had at least half of their total 401(k) balances in their employer's stock. On average, employees who had company stock in their 401(k) had 41% of their balances invested in that stock, essentially unchanged since 2002.

"With such little evidence that many employees understand or appreciate the risk of owning large amounts of company stock, diversification remains an issue in many plans," Lucas says.

Lifestyle funds, which automatically rebalance and reallocate fund investments based on an employee's age, have remained popular. About 40% of employees who are offered this option invest in them, about the same as in 2002.

Hewitt notes in its report, however, that lifestyle funds are supposed to be the main investment in one's portfolio, because they are targeted to the owner's specific financial objectives based on age. Yet only 15% have all of their noncompany stock balances in a single lifestyle fund.

Other findings from the survey:

?Only 2% of employees had balances in a self-directed brokerage account (where offered) in 2004.

?23% had an outstanding loan from their 401(k) plan, about the same as in past years.

?The average 401(k) participant is 43 years old, has been in his current job about 10 years and earns around $58,000 a year.

?The average employee who declines to participate in the company 401(k) averages 39 years, earns $33,000 and has been on the job 5.4 years.

In its report on the study, Hewitt makes several recommendations:

Employers should consider making lifestyle funds their default option for employees. That would let employees diversify their 401(k) assets without having to periodically rebalance their investments.

Create a sense of urgency among employees when offering a 401(k). To increase the number of employees signing up for the plan, give them a specific date to decide. And press upon them that they need to start thinking about retirement now, Hewitt advises.

Consider automatic enrollment of new employees. Plans can provide a default fund so procrastinating workers will be routinely signed up, unless they act to opt out.

Offer employer matching to increase participation. The match threshold (maximum employer contribution) also is important, because employees' deferral choices tend to cluster around that threshold, Hewitt notes.