401(k) Balances Up 62 Percent; So What?

Fidelity recently announced that the average balance in 401(k) accounts was 62 percent higher as of March 31, 2012 vs. March 31, 2009. Of note here is the fact that the S&P 500 index hit its low point of the 2008-09 market decline on March 9, 2009.

This growth is the combined result of participant contributions to their accounts, company matches (where available), and strong stock market results. Putting these numbers into perspective:

--A participant with a $25,000 balance on March 31, 2009 saw his account growth to $40,500 as of March 31, 2012.

--A participant with a $300,000 balance saw his account grow to $486,000.

--A participant with $750,000 saw his account grow to $1,215,000.

While these numbers are great news, my reaction is: So what? The real issue as far as 401(k) and other retirement plan balances go is: What does this mean for the plan participants' retirement readiness?

Much of what I read and much of what I've heard presented at conferences of late pertains to the need for retirement plan sponsors to focus on the outcomes of their employees who participate in these plans.

While an account balance of $486,000 or even one in excess of $1 million sounds great (and it is), the question should be: Will this balance plus any other investments and other assets accumulated by the employee provide him or her with the ability to retire in a comfortable fashion?

Plan sponsors absolutely should be focused on providing their employees with a great, low-cost investment menu. But beyond that, they would be wise to also provide them with access to unbiased investment and retirement planning advice.

A presentation by Dave Gray of Charles Schwab delivered at the recent Fi360 Conference in Chicago highlighted the gap between retirement plan sponsors and participants in those plans based upon a recent Schwab survey. Among the highlights of this survey: 54 percent of the CEOs and 62 percent of the human resources executives surveyed felt that participants fail to use the tools the company provides to them, such as educational sessions and written information about the plan. Yet at the same time, 93 percent of these same respondents indicated that they will continue to offer more of these same tools to employees.

At the same time, 83 percent of the participants surveyed indicated that they would like to have access to direct financial advice via their plan. Only 16 percent of the plan sponsors surveyed planned to offer this service in the near future.

The growth in the value of the average 401(k) account is good news. Plan sponsors now need to take the next step and provide their employees with the tools to help them manage the growth in their accounts in order to provide a secure retirement.

Roger Wohlner, CFP®, is a fee-only financial adviser at Asset Strategy Consultants based in Arlington Heights, Ill., where he provides advice to individual clients, retirement plan sponsors, foundations, and endowments. Read more about Roger here.



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