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American Morning

Retirement Savings Account Fact Check

Aired August 13, 2001 - 09:43   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
DARYN KAGAN, CNN ANCHOR: What do you say we talk about your 401(k)? I know, it looks kind of ugly to a lot of us. A lot of 401(k)s have taken a hit in recent months. It seems like everyone has lost a lot of money. But there's this new study out there that says that's just not the case. For the most part, our retirement accounts are in fact growing, according to this study.

Here's our Brooks Jackson with a fact check.

(BEGIN VIDEOTAPE)

BROOKS JACKSON, CNN CORRESPONDENT (voice-over): The news was scary -- retirement savings accounts devastated by a plunging stock market.

But hold on. Is the picture really as gloomy as the public was told?

UNIDENTIFIED MALE: I think that they have ended up getting badly misled.

JACKSON: A new study, the most detailed yet, paints a much different picture of what happened last year to those 401(k) retirement accounts. An earlier study said the average of all accounts plunged 10.3 percent last year. Ouch!

But the new study, by the Employee Benefit Research Institute, says the average person's account hardly changed at all -- declining only one-tenth of 1 percent.

(on camera): The earlier report overlooked the fact that millions of people, who owned accounts in 1999, had changed jobs or retired by last year, taking their big accounts with them replaced in the sample by new employees with smaller accounts.

So that earlier report wasn't even comparing apples and oranges, more like comparing two different bowls of fruit salad.

(voice-over): The new study, using a huge database that includes 26 percent of all 401(k) participants, painstakingly compares apples to apples, checking what was in each particular employee's account in '99 vs. what the same employee had a year later. Accounts are identified internally only by numbers, by the way, not names. So the apple's privacy is protected. And it turns out young employees, those in their 20s, actually saw a big average gain in their 401(k)s -- account balances up nearly 27 percent.

(on camera): These young workers had little to lose -- average starting balances of just over $8,000. So any investment losses they suffered were more than offset by contributions -- new money going into the accounts from employees and their companies.

(voice-over): Employees in their 30s gained too -- balances up more than 5 percent; even those in their 40s -- up 1 percent. Employees in their 50s with starting balances of nearly $100,000 did see a decline, but only 2.3 percent. Those in their 60s saw the biggest decline, nearly 6 percent. But some of that could be due to money being pulled out for retirement -- the very purpose for which it was saved and invested in the first place.

(on camera): Now, how can all this be, given that many dot-com stocks lost 90 percent of their value last year, and the Nasdaq market overall plunged 37 percent? The answer is account holders wisely diversified.

(voice-over): On average, 401(k) assets are heavily weighted to stock funds and individual company stocks, but also include lots of guaranteed income contracts, bond and money funds and balanced funds too.

UNIDENTIFIED MALE: People can make smart choices. People can make stupid choices. This data indicates that people made reasonable decisions in spite of tremendous market volatility.

JACKSON: The stock market has come down even more since last year. But this latest study suggests any decline in retirement account balances this year will be less than the decline in the market.

(END VIDEOTAPE)

KAGAN: And Brooks Jackson joining us now.

Brooks, all very interesting in the study, but a lot of people at home I know are saying: I have looked at my 401(k) account. Why should I believe what this study is telling me?

JACKSON: Well, certainly, anybody who has looked at their own 401(k) account knows exactly what happened in their 401(k).

KAGAN: Boy, do they ever.

JACKSON: And none of this changes that. However, this study is based on a detailed apples-to-apples comparison, drawing data from the largest database that exists of 401(k) accounts. Eight million apples were compared to eight million of the same apples.

KAGAN: And the shininess of those apples were the ones -- the key word towards the end of your piece: diversification. JACKSON: Absolutely right.

What it shows us is that people really do diversify their accounts. They are not all in dot-com stocks. And one encouraging factor as well is that the older the account holders are, the more they tend to get a little bit out of stocks and a little bit more into bonds and guaranteed income accounts. So the nearer that people are to retirement, the more they are getting into safer, less volatile accounts.

KAGAN: Brooks Jackson -- Brooks, thank you. Good to see you.

JACKSON: Good to see you, Daryn. Bye.

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