Data & Research March 3, 2010

Mercer: DC Plan Recovery not as Strong for Older Participants

Mercer reported that as of year-end 2009, nearly 70% of defined contribution participant balances have returned to levels prior to the stock market declines of 2008 and early 2009.
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However, more than a third (36%) of those ages 55 and older have yet to return their account balances to 2007 levels, while only 16% of those under age 30 have not recovered, according to Mercer data about the participants in plans it administers. Comparing year-end 2007 with year-end 2009, participants under age 30 have seen an average account balance increase of 81%, while participants age 55 and older have seen an average 2% decline.

Mercer said this discrepancy can be partially attributed to the following factors:

  • Younger participants, generally with smaller account balances, typically saw a greater impact from making ongoing account contributions.
  • The majority of participants age 55 and older who realized a gain in their account generally had smaller account balances.
  • Seven percent of participants age 55 and older lost more than 30% of their account value.
  • Nearly 50% of the participants age 55 and older who lost more than 30% of their account value took a withdrawal from their account.

On a more positive note, Mercer reports that participants seemed to regain some confidence in 2009 and have steadily increased their own contributions every month since June 2009, when the average contribution rate reached a low of 6.83%. However, the average contribution rate at the end of 2009 was 6.86%—still below 2008 and 2007 year-end levels.

Mercer’s data comes from a survey of the 1.2 million participants in defined contribution retirement savings plans it administers.

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Data & Research March 3, 2010

Most Middle-Class Americans Plan to Put Away Tax Refund

Americans with a financial plan are especially likely to save their tax refund, according to the First Command Financial Behaviors Index.
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The index’s February survey found that 78% of middle-class Americans (household incomes of at least $50,000) who have received, or expect to receive, a tax refund plan to put those dollars toward savings and investments, prepaying major bills, or debt reductions.

Most Americans won’t be spending that refund on a vacation to the Bahamas or other non-essential items. The survey found that 27% of respondents will spend refund dollars on a vacation, dining out, home improvement, or other consumer purchases.

Americans with a financial plan are more likely to use their tax refund for general savings (44%) than those without a financial plan (35%). Meanwhile, Americans without a financial plan are more likely to use their tax refund to pay down debt (44%) and pay monthly bills (21%) than respondents with a financial plan (33% and 11%, respectively).

“Spending and saving wisely has come back into fashion during the current financial turmoil,” said Terri Kallsen, executive vice president of strategic development at First Command Financial Services, Inc., in a release of the results. “The time-tested values of prudence and self-reliance are moving us toward a healthier economic future. We are starting to understand the value of long-term gratification for retirement dreams.”

The First Command Financial Behaviors Index is a monthly survey of approximately 1,000 U.S. consumers aged 25 to 70.

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