Study: Downturn hasn't stopped retirement savings -- yet

DES MOINES, Iowa — Most workers are not reducing their retirement contributions even though higher fuel and food prices have prompted them to cut spending in many areas, a leading retirement investment firm said Wednesday.

Boston-based Fidelity Investments, the largest retirement plan administrator in the U.S., said an analysis of 16,723 corporate retirement plans indicated that contributions actually increased in the first half of this year.

The company's plans represent about 11.5 million workers. It said on average, contributions increased 1.4 percent to $3,187 compared with $3,142 in the first half of 2007.

When looking at employees who contributed to an employer offered 401(k) or similar plan in both the first half of 2008 and 2007, the average pretax contribution increased by 7 percent to $3,512 in the first half of 2008.

"There is no doubt that American workers are feeling the pressure from escalating energy and food prices as well as a slumping real estate market, but the majority are making retirement a priority and staying the course," Scott B. David, president of retirement services at Fidelity, said in a statement.

Recent reports from retirement plan sponsors have offered mixed indications of whether workers are eyeing retirement funds as a place to cut expenses.

Des Moines-based Principal Financial Group Inc., for example, said in its Principal Financial Well-Being Index released in May that 3 percent of the workers they questioned said they had reduced retirement contributions in response to higher gas prices.

The online survey was conducted by Harris Interactive of more than 1,100 workers and 673 retirees. It was completed in April and early May.

David Wray, president of Profit Sharing/401(k) Council of America, a nonprofit trade group representing companies that sponsor retirement plans, said his group's information indicates most workers aren't cutting retirement contributions.

"There have been a number of reports which have been based on anecdotal and regional information," he said. "The overall information we're getting is that there has not been that much change."

He said regions of the country hit hard by the housing market collapse or high unemployment have seen a disproportionate number of workers altering their retirement contributions.

Nationally, however, most workers are keeping steady with their 401(k) plans.

The Fidelity study indicates the economic downturn has had some impact on retirement accounts, however.

The average account balance fell 7.5 percent to $64,000 at the end of June because of the falling stock market. The average account balance for those employees who stayed in their plans for both years was down less than 1 percent to $71,500 at the end of June 2008 from $72,000 the year before.

Other trends noted in the Fidelity analysis:

-At the end of June, 19.2 percent of workers with a balance in their workplace savings plan had a loan outstanding. That was down slightly from 19.4 percent at the end of June 2007.

-2.8 percent of workers initiated a loan from their workplace savings plan during the three months ended June 2008, down from 3.1 percent from the same period a year ago.

-1.6 percent of all employees with a balance in their 401(k) as of the end of June had taken a hardship withdrawal from their account.

-As of the end of 2007, only 9 percent of all workers contributing to their workplace savings plan reached the annual maximum of $15,500.

Fidelity had managed assets of more than $1.5 trillion as of June 30.