Whether paralyzed by fear, governed by inertia, or heeding an inner voice that counseled "stay the course," defined contribution participants appear to have overcome the initial jolt to their retirement savings accounts during the global financial crisis of 2008-09.
Plan sponsors aided the resurrection via plan designs that added automatic features and target-date funds, and incorporated greater use of qualified default investment alternatives, defined contribution researchers and industry members said. Market appreciation played a big role, too.
Data from Alight Solutions collected from its record-keeping clients show the average participant retirement account plunged nearly 29% to $57,000 at year-end 2008 from the previous year. It wasn't until 2012 that the average account balance exceeded the 2007 level, climbing to $81,000.
By the end of last year, the average account balance was $117,000.
During this same period, the percentage of plans offering auto enrollment climbed to 58% in 2009, from 34% in 2007. It reached 68% last year, according to an Alight survey of clients and non-clients.
Other researchers noted that patient participants — whatever their motivation — coped better than their jittery peers.
"People didn't know what to do," said Lori Lucas, president and CEO of the Employee Benefit Research Institute, Washington. "Many stayed the course."
Ms. Lucas pointed to a 2015 research report by EBRI and the Investment Company Institute that showed consistent participants in 401(k) plans had more than double the average account balances of all participants in the EBRI-ICI database between 2007 and 2013. Among the consistent group, the average account balance dropped 25.8% in 2008. Even so, the annualized growth rate was 10.9% from 2007 to 2013.
"The sponsors may have been surprised at how well-behaved the participants were," said Jean Young, senior research analyst at the Vanguard Center for Investor Research, Malvern, Pa. "We saw that by and large participants stayed the course. We did not see people panicking."
It took a few years for average asset allocations among Vanguard's DC clients to approach pre-crisis levels. Annual Vanguard surveys showed a drop in overall equity allocation to 61% in 2008 from 73% in the previous year, while the cash allocation rose to 23% from 15%. However, by 2011, the cash allocation was 12% and the total equity allocation — equity funds, equity components of target-date and balanced funds, and company stock — was 71%. Last year, equity was up to 75% and cash was down to 6%.