Cecily O'Connor
RedwoodAge.com

Want to know how bad the damage was to your 401(k) last year?

New research found the market downturn led to an average 30.5 percent loss in 401(k) assets last year, with age and tenure among the chief indicators of how badly each individual was hurt, according to a joint report by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

At the end of 2008, the average account balance was $45,519, compared with $65,454 at year-end 2007, based on records of 24 million plan participants.

The battering reflects changes in employer and worker contributions, as well as investment gains and losses, among other factors. The Standard & Poor's 500 stock index, for example, sank 38.5 percent last year.

"Retirement savers, like most investors, suffered during 2008, one of the deepest bear markets in modern history," said Sarah Holden, ICI's senior director of retirement and investment research.

Even as 401(k) balances are coming up short, the plans have grown to be the "most widespread private-sector, employer-sponsored" retirement offering in the US, according to the report. About 49.8 million American workers were active 401(k) plan participants in 2008, with collective assets totaling $2.3 trillion.

Stung by Stocks
While lawmakers have focused more on helping 401(k) participants in recent years, many investors still fall prey to pitfalls such as taking unnecessary risks, over-allocating to their employer's company stock, or placing a large percentage of assets in equities when they are nearing retirement.

To that end, the group under the most water, in terms of percentage losses, was "mid-career workers with larger balances," said Jack VanDerhei, EBRI's director or research. That's mainly because the share of equities in their account allocation was "relatively high," and their ongoing contributions were small relative to existing balances, VanDerhei added.

However, the growth in account balances among "consistent participants" over five years highlights the benefits of disciplined saving, Holden said. Among consistent participants, or workers who had 401(k)s with the same employer each year from 2003 to 2008, those in their 20s saw their average account balance fall by 18.6 percent last year. Consistent workers in their 40s endured a 26.4 percent drop.

Even after the 2008 losses, these investors still saw their average account balances increase at an annual rate of 7.2 percent over five years to $86,513 at year-end 2008 from $61,106 at year-end 2003.