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Good News, Caution on 401(k)s

Monday, July 11, 2011
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Is the retirement crisis over?

After the economic downturn crushed hordes of 401(k) balances, one study says they're back -- in a big way.

Fidelity Investments recently found that average 401(k) balances are now at $74,900, up 12 percent since last year and 58 percent since 2009. Balances even climbed to their highest levels since 1998, when Fidelity started keeping such data.

About 10 percent of employees increased their deferral rates in the first quarter of 2011, the largest number in five years.

Sure, some people have taken out loans against 401(k)s and older workers are wary of retiring because of lower account balances than they'd expected -- but kudos to HR for getting the word out to employees about the importance of continuing to contribute in tough times.

It seems common knowledge that investing in a 401(k) is a good idea and that getting a full company match is important. And again, that's a testament -- in part -- to HR's strong communications approaches. But let's not celebrate just yet. While the increased account balances are encouraging, they by no means point to fund levels that are totally back on the right track.

"Funds have grown, but that doesn't mean people are in good shape," says Robyn Credico, defined-contribution-practice leader at Towers Watson in Arlington, Va.

Between retirement plans, savings accounts and personal investments, people should be saving roughly 12 percent to 15 percent of their pay, she says.

"If you're not saving enough and you aren't saving early enough, even in best of times and a good economy, it's not likely you're going to be able to retire on time," she says.

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So what should HR professionals be doing if they can't rest on their laurels just yet? In addition to touting automatic enrollment in retirement plans -- i.e., taking the idea straight to the CEO if it's not in place at their organizations already -- they should be giving automatic deferral increases serious thought as well.

The increases can be fairly negligible so as not to drastically impact workers' paychecks, and workers always have the option to dial them back down. But many won't, and it's amazing what a 1 percent increase can mean over time.

Retirement and 401(k) balances have made it through some pretty bleak years; with strong HR communication and leadership, they really should be able to come all the way back.

Jared Shelly can be emailed at jshelly@lrp.com.

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