May 10, 2005 (Associated Press) – More workers are contributing to 401(k) retirement accounts, but many are still too heavily invested in their own company's stock, according to a national survey released Tuesday by Hewitt Associates Inc.

Hewitt's annual benchmarking report, titled "How Well Are Employees Saving and Investing in 401(k) Plans," found that some 70.3 percent of workers participated in defined contribution plans in 2004, up from 69.8 percent in 2003 and 68.2 percent in 2002.

"We saw some improvement ... but we're a little disappointed that we didn't see more movement than we saw," said Lori Lucas, director of participant research at Hewitt, which is headquartered in Lincolnshire, Ill.

That's especially true, she said, because more companies have tried to educate workers about retirement savings plans and there's been more public discussion about the need for private retirement savings amid the debate over reforming the nation's Social Security system.

The study also found that despite horror stories about workers who lost most of their retirement savings with the collapse of Enron Corp. in 2001 and WorldCom Inc. in 2002, many workers continue to buy and hold large amounts of company stock.

The Hewitt survey found that more than one in four workers held half or more of their total 401(k) balances in employer stock. Many receive company stock as part of the company's "matching" contribution.

"Participants invest in company stock for a number of reasons: loyalty to the company, confidence that their company's stock is a superior investment, assurance in their 'insider' knowledge, failure to understand security-specific risk — just to name a few," the report said.

Lucas said 10 percent to 20 percent is the maximum one should hold of any asset, including company stock. She said that most companies have eliminated mandatory, long-term holding periods for company stock, so workers can sell the shares if they want. "But people are not responding by diversifying their balances," she said.

Hewitt, which is a global human resources outsourcing and consulting firm, said its latest survey looked at the some 2.5 million workers eligible to participate in the retirement plans offered by large companies.

The object, Hewitt said, was to give workers and their employers some baselines to compare their own performance.

Among the findings in the 2004 survey:

• The average contribution level of participating workers was 7.9 percent of before-tax salary. Workers in their 20s averaged 6.3 percent, while those in their 60s averaged 9.7 percent.
• The average account balance was $68,630. Male workers had higher average balances than females — $86,930 for men compared with $48,970 for women. And average balances increased with age, ranging from $10,730 for people in their 20s to $37,420 in their 30s, $80,170 in their 40s, and $115,260 in their 50s.
• One in five workers did not contribute enough to qualify for the full employer "matching" contribution, which typically is about 6 percent of pay.
• The majority of workers made no attempt to rebalance or reallocate their holdings in 2004.

Lucas said that the balances for many age groups "were not where those individuals need to be at that stage of the game," suggesting that workers were late in signing up for 401(k) plans and didn't contribute as much as they should.

Lucas said she thought some workers were overwhelmed by the amount they need to save, so they do nothing.

"I use the analogy with weight loss. You may need to lose 100 pounds, but it's easier to deal with if it's 2 pounds a week," she said. "Instead of aiming for a $1 million nest egg, just save 2 percent more than you are every year until you get to 10 or 15 percent of wages.

"That's something people can better grasp and take action on."

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