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New analysis estimates losses to retirement accounts

February 24, 2009 by  

New study conducted by the Employee Benefit Research Institute has measured the impact of the financial meltdown on 401(k) accountsA study conducted by the Employee Benefit Research Institute has measured the impact of the financial crisis on 401(k) accounts.

A nonpartisan group, EBRI has published the analysis of 401(k) retirement account balances from January 1, 2008 to January 20, 2009. Its report concludes that account holders’ losses were determined by their account balance, age and job tenure.

Employees whose account balances were less than $10,000 experienced an average growth of 40 percent in 2008, since their contributions had a bigger impact than investment losses. However, those who had more than $200,000 lost 25 percent on average.

The study also found nearly 1 in 4 workers aged 56-65 had more than 90 percent of their account balances in equities at the end of 2007, and more than 2 in 5 had over 70 percent.

After the Pension Protection Act of 2006 was introduced many employers started to offer lifecycle/target-date funds, which automatically rebalance asset investments as the beneficiary grows older. The report concludes that if more employees nearing retirement age had been enrolled in target-date funds at the end of 2007 they would have significantly mitigated their losses.

The analysis used the EBRI/ICI 401(k) database of more than 21 million participants to estimate the impact of the stock market on 401(k) account balances.

EBRI is a nonprofit research institute based in Washington, DC, that focuses on health, savings, retirement and economic security issues.

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