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Investment gains boost 401(k) account balances

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Helped by strong investment gains the past four years, employees' 401(k) plan account balances have recovered from the beating they took during the bear equities market, according to a study released last week.

The average 401(k) account balance for plan participants was $66,500 last year, up 6.4% from $62,500 in 2005 and nearly 10% from 2004, when account balances averaged $60,600, according to Fidelity Investments, a Boston-based mutual fund provider and 401(k) plan administrator.

Last year's average surpassed the $64,000 average balance in 1999--the peak of the bull market. Average balances then tumbled to a low of about $44,000 in 2002, though balances have been rising since then.

For employees in the same 401(k) plan the past five years, the average balance nearly doubled to $111,000 in 2006 from $59,000 in 2001.

The study, based on an analysis of account balances of more than 10 million employees in 13,000 corporate plans serviced by Fidelity, also found a big rise in employers offering automatic enrollment.

Last year, 301 plans offered automatic enrollment, up from 153 in 2005, while 200,000 employees were automatically enrolled in the plans, double the total from 2005. In such programs, employees who don't indicate whether they want to participate in an employers's 401(k) plan are enrolled--unless they object--and a specified percentage of their salary is contributed to their 401(k) account.

Automatic enrollment programs "combat the inertia," noted Jeffrey R. Carney, president of Retirement Services for Fidelity Employer Services Co.

Participation rates and the amounts contributed to the plans varied considerably by age. Last year, 67.5% of baby boomers--those born between 1946 and 1964--participated in their employer's 401(k) plan; 58.2% of Generation Xers--those born between 1965 and 1978--did so; as did 28.6% of Generation Yers--those born between 1979 and 1991.

Additionally, baby boomers in 2006 deferred an average 7.7% of salary to their 401(k) plans compared with 6.2% for employees in Generation X and 4.6% for workers in Generation Y.

Overall, the average participation rate fell slightly to 63.1% in 2006 from 63.4% in 2005, while the average percentage of pay employees deferred to 401(k) plans held steady at 7.0%.

A summary of the findings from the study, "Building Futures VIII," is available at www.fidelity.com.