A small, but growing number of 401(k) investors, burned by the steep negative returns in 2008, are moving assets into such capital preservation funds as stable-value and money market funds, Mercer Consulting reported.

Assets in such funds grew 70% in 2008, evidently moving directly out of equity mutual funds, whose assets in 401(k) plans shrank by 70%.

“Overall, we believe that plan sponsors should be heartened by the fact that most of their participants are treating their 401(k) accounts as long-term investments as staying the course,” said Eric Levy, retirement business leader at Mercer. “It is certainly understandable why some participants would move to some capital preservation funds, given the recent economic upheaval. In all likelihood, this will continue until the macroeconomic outlook improves.”

On top of this, an increasing number of investors are seeking withdrawals from their 401(k)s in the form of either hardship withdrawals or loans. Such withdrawals rose 59% in November and December. In addition, since July, the number of people who have dialed back their contribution rates to zero has also increased.


That said, the number of people taking these drastic measures is still small, Mercer noted, without releasing the absolute figures. Mercer based its report on the actions of the 1.2 million participants in the 401(k) plans it administers.

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