NEW YORK (CNN/Money) - Average 401(k) balances jumped 35 percent to $64,600 last year, exceeding 1999 levels for the first time, according to a new study.

But most employees have been lax in managing their retirement plans, the study by Hewitt Associates found.

Retirement Planning Tools • Asset allocator • Fund screener • Retirement planner

"Employees investing in their 401(k) plans profited from a strong market last year, but they still weren't engaged in the retirement savings process," said Lori Lucas, director of research at Hewitt, an outsourcing and consulting firm, which released the study Monday.

While the average 401(k) account balance soared, increases in plan participation, contribution rates and rebalancing activity have been modest.

Participation in 401(k) plans among eligible workers in the United States rose to nearly 70 percent last year, from 68 percent in 2002, according to the Hewitt survey.

But only 45 percent of workers aged 20 to 29 participated in a such a plan, Lucas said, noting they were the "toughest group of employees to reach."

"With rising retiree health care costs and declining support for traditional pension programs, they are a group that may ultimately need to rely more on their 401(k) savings than their older peers," she said.

To conduct its study, Hewitt examined the saving and investment behavior of more than 2.5 million American workers in 2003.

Contribution rates for 2003 were little changed from 2002, staying within a range of 7 percent to 9 percent of salary.

Employees are wising up to the virtues of diversification, but the survey says it's still not a top priority for most participants.

Related Stories • The dream of retirement • The 15-minute retirement plan • Saving for retirement

The average number of funds held by employees increased to 4.1 last year from 3.6 for 2002.

In addition, slightly more than a third, or 33.8 percent, of employees held only one or two asset classes in their portfolio, down from 38.9 percent for 2002.

Employees are also holding onto large amounts of company stock, a striking revelation in the post-Enron environment.

On average, employees holding company stock had 41 percent of their 401(k) balances in that investment; and more than a quarter -- 27 percent -- of that number held 50 percent or more of their balance in company stock.

This may be attributable to years of accumulation of a company match or of profit sharing.

But Lucas noted that many employees, particularly workers age 60 and older, are putting their retirement portfolios at risk with such a large percentage of their funds tied up in a single stock.

Additionally, only one in six employees who contribute to a 401(k) retirement plan made any type of transfer in 2003 versus one five for 2002.

"In many cases, employees don't actively manage their 401(k) portfolios because they don't know how to make good investment decisions," said Lucas. "They feel safer doing nothing."

YOUR E-MAIL ALERTS Retirement 401K Hewitt Associates or Create your own Manage alerts | What is this?

Doing nothing could skew an employee's portfolio allocations. As stock prices rise investors may have increased exposure to equities and vice versa. Periodic asset reallocation helps investors check their portfolio mix in check.

Conventional wisdom states that 401(k) contributions dip as the market slips, but Lucas says the number of people who actually cut their contributions are in the minority and that for 2004, people are still making their contributions.

Even though it may not be the wisest course, Lucas said, "the average person is not going to do anything."