Vanguard released findings of the investing behavior and performance of its 401(k) investors in 2008, showing remarkable resilience in the face of steep market declines.

Continuous participants, i.e. the 75% who had a balance at both the beginning and end of 2008, lost a median 14%. More than 33% saw their balances either rise or stay flat, principally due to ongoing contributions, conservative asset allocation or both.

Only 20% lost 30% or more of their portfolios, principally due to large equity allocations, the report, “How America Saves 2009,” revealed.

In sum, Vanguard investors remained committed to equities, traded lightly and were hit with far milder declines than the broader indexes.

“Our research underscores that 401(k) plans continue to be an effective retirement savings vehicle,” said Stephen Utkus, director of the Vanguard Center for Retirement Research. “It’s a mistake to anchor on the high point of October 2007 and assume that it was a guaranteed value. It’s also a mistake to anchor on the low point of late last year, or of March 2009, and assume that balances will never grow again.”

Vanguard serves more than three million participants in 2,200 plans. The report also, notably, found that 20% of Vanguard 401(k) investors have all of their money in a target-date or other low-cost, professionally managed, balanced fund.

At the end of 2008, 50% of Vanguard plans had a qualified default investment alternative, as permitted under the Pension Protection Act of 2006, and of these, 85% chose a target-date fund. “The diversification within a target-date fund helped to diminish the impact of last year’s volatility on investors,” Utkus noted.

And Vanguard researcher Jean Young added, “Even if automatically enrolled participants experienced lower returns in 2008 because of the market volatility, at least they were saving some money toward their future.” Employers deferred an average 3% of workers’ salaries into 401(k)s automatically in 2008, in line with previous years. On average, the deferral rate dipped to 7%, down from 7.3% in 2007.

Taking into account both employee and employer contributions, the average total contribution rate was 10.4% and the median was 9.5%, which Vanguard characterized as fairly strong.

However, 61% of overall plan assets were in equities, down from 73% in 2007. Vanguard estimates that eight percentage points of this movement came from declining stock prices and four percentage points from participants shifting assets to fixed income.

Also of note, only 16% of participants traded during 2008 and just 2% abandoned equities.

Participants who separated from service in 2008 largely preserved their assets for retirement. Sixty-nine percent either remained in their plan or rolled over their savings to an IRA or a new employer plan. At the same time, there was a small increase in the percentage of participants choosing to take cash and presumably spending their savings—up from 29% in 2007 to 31% in 2008. 


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