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$mart Money Newsletter ~ May 2011

$mart Money is a quarterly newsletter published by our company. The lead article discusses how our natural instincts can seriously erode our investment returns and how to avoid these pitfalls. The Investing 101 column reviews the basics of stocks and bonds.

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Average 401(k) Balances Reach Highest Level Since 1998

According to Fidelity, the average balances of 401(k) retirement accounts reached the highest level since Fidelity started tracking account values in 1998.

Key observations:

The average account balance in the U.S. rose to $74,900 as of March 31, an increase of almost 12 percent from last year
10-year continuous participants have an average balance is about $191,000.
Participants age 55 years or older and are 10-year continuous participants have an average is about $233,800.
About two-thirds of the increase in account balances in the first quarter was driven by market performance, while one-third was from participant contributions
Participants saved an average 8.2 percent of their salaries.
Americans held $3.1 trillion in 401(k)s as of Dec. 31.

These figures show that contributing to a 401(k) early, at a “meaningful” rate and continuing to save makes a difference. Read more in this Bloomberg article:

Average 401(k) Balances Reach Highest Level, Fidelity Sayshttp://noir.bloomberg.com/apps/news?pid=newsarchive&sid=aUstRNlUBCL4May 11 (Bloomberg) — Average balances of 401(k) retirement plans reached the highest level since Fidelity Investments began tracking account values in 1998.

Getting a Better Deal in Your 401(k) Plan

Companies that manage 401(k) plans have been siphoning off billions of dollars through hidden fees and conflicts of interest:

“I think 401(k) fees will eventually become like property taxes. Most people can tell you within $20 what they are paying in property taxes, and they fight any move to increase them. When people know what they are paying in 401(k) fees, they will become more vocal about trying to minimize that cost.”
“The day that plan participants can see they are paying 3 to 5 percent in fees will change everything”
“Some [401(k)] participants used to scream bloody murder because they didn’t know what they were paying; the twist is now they scream bloody murder because they think it’s too much”

Learn more in Laura Rowley’s article on Yahoo Finance:

Getting a Better Deal in Your 401(k) Planhttp://finance.yahoo.comWill workers finally get a better deal from their 401(k) plans? More than two years ago I reported on how companies that manage 401(k) plans were siphoning off billions of dollars through hidden fees and conflicts of interest. Since that time, a trifecta of legal, regulatory and market…

SunTrust faces suit over operation of 401(k)

SunTrust, the Atlanta banking giant, is being sued for allegely favoring investment plans operated by SunTrust or its subsidiaries that performed poorly and charged higher fees than plans offered by an independent investment companies
The suit alleges that under the Employee Retirement Income Security Act of 1974, the defendants had a duty to choose investment options for the benefit of employees, not SunTrust.
The suit alleges some of the SunTrust-controlled investment funds charged fees several times higher than comparable funds operated by a prominent third-party investment company.
The suit says SunTrust’s 401(k) plan controls more than $2 billion, and the company could have negotiated better fees with outside firms.
Company officials removed funds not tied to SunTrust on the grounds of poor performance, but the suit says the company didn’t remove SunTrust-affiliated offerings for poor returns.

Read more in J. Scott Trubey’s article in The Atlanta Journal-Constitution:

SunTrust faces suit over operation of 401(k) | ajc.comhttp://www.ajc.com/business/suntrust-faces-suit-over-877525.htmlA SunTrust Banks retiree sued his former employer this week, accusing the company of enriching itself on high fees it charged employees who took part in certain company 401(k) plan investments from 2002 to 2010.

401(k) Generation Begins to Retire

The 401(k) generation is starting to retire and it’s not pretty. The median household lead by a 60 year-old with a 401(k) has LESS THAN ONE-QUARTER of what its need to maintain its standard of living in retirement!

Boomers Find 401(k) Plans Come Up Short - WSJ.com

Boomers Find 401(k) Plans Come Up Shorthttp://online.wsj.comThe median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston…

401(k) – Too Much of a Good Thing?

Investing too much in your company’s stock? A Hewitt survey reveals that when company stock is a 401k option, people hold an average of 21% of company stock. This allocation is too large given that many experts recommend that company stock should be <10% of your portfolio (think Enron and Lehman Brothers).

Rate Your 401(k) Plan

Fees are one thing that you definitely can and should control in your investment portfolios. 401(k) plans are notorious for making it difficult to figure out how much you’re paying in fees. BrightScope offers a free tool that shines a light on this dark area. Try it out and be a better informed investor.

BrightScope | 401k Plan Ratingshttp://www.brightscope.com/BrightScope quantitatively rates 401k plans and gives participants, plan sponsors, asset managers, and advisors tools to make their plans better.

Raiding Your 401(k)? Think Twice…

Think twice before raiding your 401(k) for a loan. You pay taxes on the withdrawl at your personal income tax rate and you may be subject to a 10% penalty. You miss out on potential market gains on the amount you cashed out. Double taxation — you repay the loan with after-tax dollars and you’ll be taxed again at distribution. Finally, if you change jobs, you usually have to repay the loan immediately.

72% of Small Company Employees Have No Retirement Plan

‎72 percent of workers in small companies don’t have retirement plans available to them. Some firms don’t set up plans because of the cost. [U.S. Small Business Administration’s Office of Advocacy, March 2010 via WSJ].

Enron and Your 401(k)

A common pitfall that we see over and over is owning too much company stock in 401(k)s. This is at odds with diversified investing and magnifies your exposure to one single company that you’re already obliged to for your income. The worst case scenario does happen. Can you say Enron?

Danger In Your 401(k)http://www.forbes.comOne might have guessed that it would be a long time before anybody was foolish enough again to tie up a big chunk of his retirement savings in the same enterprise that issues his paycheck. Apparently, a long time has passed.

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