Most 401(k) investors took a hands-off approach to their retirement plans last year, declining to make trades or adequately diversify their assets.

During a bear market, this is, of course, a definite plus for the mutual fund industry. While investors didn't add to their plans en masse, they didn't withdrawal large chunks of assets from them, either, said Luis Fleites, an analyst at Cerulli Associates, a Boston research firm that tracks trends in retirement investing.

"It's good news for the industry," he said. "Those 401(k) assets represent a healthy percentage of mutual funds."

Only 19.5% of 401(k) investors made a trade of any kind in 2001, according to a recent study by consultant Hewitt Associates of Lincolnshire, Ill. By comparison, 30% of plan participants made at least one trade in 2000.

The study examined the activity of 800,000 U.S. employees and more than 500,000 401(k) participants.

Total retirement plan assets are at just less than $10.2 trillion, according to Cerulli. In 2001, 401(k) assets made up an estimated $644 billion, or 9%, of the fund industry's $7 trillion in assets, Fleites said. In addition, Cerulli found that average plan balances declined by just more than $4,000, from $40,918 in 2000 to $36,390 in 2001.


Still, the Hewitt study cited troubling trends among 401(k) investors. The firm attributed the decline in investors' involvement with their plans to volatility in equity markets as well as troubling news toward the end of the year regarding Enron and other company stock-related scandals.

"It was less rewarding and more challenging for employees to manage their investments last year and, consequently, many people decided to disengage from any 401(k) activity," said Lori Lucas, a Hewitt consultant.

She said it was reassuring that investors didn't panic and kept their assets in their plans following the terrorist attacks of Sept. 11. But she also said, "The fact that less than one in five participants proactively interacted with their 401(k) plan is telling. People basically disconnected from the investment process."

Consultants at Hewitt were also troubled by the fact that very few 401(k) plans are diversified. The study found that 75% of 401(k) participants' assets were allocated in a small number of asset classes, including stable value funds, large U.S. equity investments and company stock.

The consultants also found that 29% had at least 75% of their balances in company stock. Company stock has become a hot-button issue in Washington and in the retirement investing industry after employees at bankrupt firms, including Enron, lost millions because their retirement portfolios were not adequately diversified.

Approximately 15% of the respondents had all of their balances in company stock, Hewitt said. And older investors were just as likely as younger investors to hold substantial amounts of company stock. Roughly 33% of participants age 60 or older had at least 75% of their plan balances in company stock. Just less than 20% had all of their balances in the stock of their companies.

To rectify those problems, Hewitt and other analysts said plan sponsors are increasingly using advice tools, such as those from Invesmart, of Pittsburgh, and Financial Engines, of Palo Alto, Calif., which can help guide investors. In addition, the firm said that some plan sponsors are using "targeted communication, including pushing specific messages out to employees via e-mails or statements."

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