Business Wire

January 10, 2002, Thursday 10:07 AM Eastern Time

DISTRIBUTION: Business Editors

Annual Fidelity Investments Reports Show Strength of 401k, 403b, 457 Plans, Despite Volatile Markets

DATELINE: MARLBOROUGH, Mass., Jan. 10, 2002

Two New Reports Now Available on Retirement Plans for Corporate, Healthcare, Higher Education and Government Workers Fidelity Investments today released two comprehensive reports on employer-sponsored retirement plans in the corporate and tax-exempt markets, which concluded that Americans continued to participate in 401(k), 403(b) and 457 plans at very high rates, made relatively few exchanges among investment options, and continue to "stay the course."

The reports, based on data contained in Fidelity's recordkeeping systems for the nearly 22,500 plans and more than 8.5 million participants it services, revealed: -- Participation in corporate plans continued at a high rate; the average plan participation rate was 73 percent. Voluntary plans were also high with nonprofit healthcare and higher education having 54 percent and 60 percent participation, respectively. -- Corporate participants continued to contribute at nearly 7 percent of their wages. -- 16 percent of tax-exempt participants and 26 percent of participants in corporate plans made exchanges among investment options in their plans in 2000. -- The average balance of a corporate participant at the end of 2000 was $55,000, off 14 percent from the end of 1999. Among tax-exempt plans, where Fidelity data may only represent a portion of a participant's total holdings because these plans have multiple recordkeepers, the average was about $35,000. "In the 20 years that many American workers have saved for retirement through the workplace, 401(k)s, 403(b)s and 457 plans have gained tremendous popularity and investors have experienced 17 years of positive returns for the S&P 500(R), with a historical average annual return over the period of 15.68 percent(1)," said Peter J. Smail, president of Fidelity Employer Services Company. "Data from the Building Futures and Defining Value reports underscore the strength of America's defined contribution plan retirement system and the commitment millions of participants have even in a volatile market."

For the corporate marketplace, this is the third year Fidelity has published its "Building Futures" report. This is the first year Fidelity has published "Defining Value," a report based on data from its extensive system for 403(b), 401(k) and 457 plans it services for tax-exempt organizations in higher education, healthcare and the public sector.

Catching up in 2002

The reports indicate that many older workers - some boomers and most pre-retirees, who haven't been in the system long enough - may have gaps in covering their retirement income needs. The new savings opportunities with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) open up the door for these participants to save more through increased limits and new "catch-up" provisions.

-- The Fidelity 401(k) Success Indicator revealed that pre-retirees in corporate plans would only be able to meet about a quarter of their retirement income needs with their 401(k) assets alone. Many of these participants, who may not have saved in 401(k)s long enough, are more likely to have access to defined benefit pension plans and will rely on additional sources of retirement income, such as social security.

-- Mid-life participants in corporate plans should be able to meet about 55 percent of their needs with 401(k) assets. -- Nearly 60 percent of current tax-exempt plan participants are between 40-59 years old, with increasing needs from their defined contribution plans as they near retirement.

"Most employers have already moved ahead to bring the new provisions to their employees that allow increased benefits and contributions," said Joseph P. LoRusso, president, Fidelity Institutional Retirement Services Company. "Building Futures found that corporations are embracing the sweeping changes in legislation to offer new opportunities for their employees to increase their retirement savings in 2002 and beyond. In fact, more than half of corporate plans will increase their contribution limits and 62 percent will offer catch-up provisions."

Tax-Exempt Participants

In the tax-exempt market, workers at higher education institutions are the leading retirement savers, compared to their counterparts in non-profit healthcare and the public sector.

-- At $50,000, the average account balance in higher education is the largest among the tax-exempt sectors, while average healthcare and public sector balances were at $23,000 and 37,000, respectively.

-- Participation rates are strongest among healthcare (54 percent) and higher education (60 percent) with the public sector at 35 percent to 40 percent.

-- Yet, public sector workers, who participate in 457 plans, have greatest access to one of the newest features being added to plans in recent years -- self-directed brokerage accounts, which are now available in about half of all 457 plans service by Fidelity.

"What may be surprising to some is that the plans offered by tax-exempt organizations are on par with what corporations are offering," said John W. "Jack" Callahan, president, Fidelity Investments Tax-Exempt Services Company. "For example, Defining Value shows that plans offered by hospitals, government offices and colleges provide a large array of options, online access, and communications and education programs to their participants. Based on our findings, we see an opportunity to make progress in simplifying the way tax-exempt participants manage their plans, which are typically split among several providers."

Fidelity compiled the 96-page "Building Futures III: How Workplace Savings are Shaping the Future of Retirement" report based on a comprehensive analysis of 2000 data for 7.1 million participants in about 8,500 defined contribution plans serviced by Fidelity Institutional Retirement Services Company.

The 107-page "Defining Value" report is based on data from nearly 14,000 defined contribution plans, including 401(a), 401(k), 403(b) and 457 plans serviced by Fidelity Investments Tax-Exempt Services Company, and their corresponding 1.45 million participants. Defining Value reports the Fidelity component of its exclusive and multi-vendor clients where a number of plan providers record keep their partial participants and holdings.

Fidelity Investments is one of the world's largest providers of financial services with custodied assets of $1.4 trillion, including managed assets of $875.6 billion. Fidelity offers investment management, retirement, brokerage and shareholder services to 17 million individuals and institutions as well as through 5,500 financial intermediaries. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, one of the largest mutual fund supermarkets and a leading online brokerage firm. Fidelity Investments' Web site is at www.Fidelity.com.

(1) Past performance is no guarantee of future results. All indices are unmanaged and performance of the indices is not illustrative of any particular investment. An investment cannot be made in any index.

Fidelity Employer Services Company provides defined contribution retirement plans through Fidelity Institutional Retirement Services Company and Fidelity Investments Tax-Exempt Services Company, both are divisions of Fidelity Investments Institutional Services Company, Incorporated.