Fidelity Investments [see profile] today released its quarterly data on the state of the 401(k) showing positive, steady savings behavior by the majority of participants. However, it also cited an increase in the use of loans and hardship withdrawals by participants.

While the majority of 401(k) participants continued to save during the quarter, the percentage of participants either initiating a loan or a hardship withdrawal increased, according to Fideility. Loans initiated over the past 12 months grew to 11 percent of total active participants from about nine percent one year prior.

Plan sponsors report that the top reasons why participants are taking hardship withdrawals are to prevent foreclosure or eviction, pay for college, and the purchase of a primary residence.

“We recognize that for some, taking a loan or a hardship withdrawal from their 401(k) may be their only option because it’s their only form of savings,” stated James M. MacDonald, president, Workplace Investing, Fidelity Investments. “However, we want to make sure that before workers tap their retirement accounts prematurely, they are fully educated about both the penalty that may be incurred and the long-term implications for their retirement.”

Fidelity's data found that the average age of participants taking a loan or hardship withdrawal is between 35 and 55 years old –- a worker’s peak earning years –- when individuals often have to deal with multiple, competing, financial challenges.

On the bright side, Fidelity's data revealed that the average 401(k) account balance as of the end of the second quarter was $61,800, up 15 percent from the same time last year, but down from the end of the first quarter of 2010.

The average deferral rate held steady during the quarter at about eight percent with 32 percent of participants deferring at 10 percent or higher. Similar to the first quarter, more participants increased their deferrals (5.3 precent) than decreased (2.9 percent) in the second quarter.  

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE