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401(k) plans losing money
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July 9, 2001: 6:26 p.m. ET
Retirement savings plans lose money for first time in 20 years
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NEW YORK (CNNfn) - The average account in the popular 401(k) retirement savings plan lost money last year for the first time in the plan's 20-year history despite thousands of dollars in new contributions, according to an industry report Monday.
The average account shrank to $41,919 in 2000 from $46,740 in 1999, according to consulting firm Cerulli Associates. Participants were highly exposed to company stock, which accounted for 18 percent of 401(k) assets, the firm said. They also had 31 percent of assets on average in retail mutual funds.
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The decline in 401(k) values has persisted into the first half of this year, influenced in part by a depressed economy and continued bearish sentiment in the markets.
Cerulli predicts that the 401(k) market could continue to contract if the stock market remains lackluster and employees second-guess their investment strategies. The report said net new flows into retirement plans are projected to remain flat.
The 401(k) is one of the most desirable retirement plans because it lets workers contribute more money -- $10,500 a year -- tax-deferred than any other long-term savings vehicle.
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Many employers also match individual contributions up to certain percentage of salary. Employees become vested, meaning they get to keep those matching contributions, by staying at a company for a certain period of time.
The plans also provide benefits to employees at smaller companies that do not have a traditional pension plan in place, thereby encouraging savings and enabling workers to manage their money themselves. 
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