First the good news. The average 401(k) plan balance is down only 14% this year to $68,000 from $79,000 in 2007, according to Hewitt Associates. And since the precipitous decline in the stock market of the past few months, only 4% of participants have decided to stop contributing.
As well, although investors have reduced the proportion of their allocations from 58% to stocks a year ago, such holdings still account for 53.8% of portfolios. Earlier this year, however, 75% of portfolios were in stocks.
Now the bad news. Since the credit crunch has made borrowing through traditional channels more difficult, more employees are tapping into their 401(k)s for cash, in spite of the penalties and additional taxes for early withdrawals. Six percent have pulled money out, up from 5.4% a year ago. And hardship withdrawals are up 16%.
This is a bad idea, said Hewitt Director of Research Pamela Hess.