Stock-market slide brings 401(k) plans down for first time Retirement accounts shrink - 7-31-2001 BY HARRIET JOHNSON BRACKEY Quote by Faith Read Xenos, CFP A major piece of millions of retirement plans, the average 401(k) retirement savings account, shrank last year for the first time. The average balance dropped to $41,919 last year from $46,740 in 1999, according to Cerulli Associates, a financial consulting firm in Boston. That $4,821 drop isn`t surprising considering the market`s tumble last year but it does contain a few lessons, starting with the importance of managing your nest egg. ``I don`t think people paid much attention when things were good,`` said financial planner Faith Read Xenos of Singer Xenos Investment Management in Coral Gables. Another lesson is the importance of spreading one`s money around beyond the company stock that so many 401(k) plans contain. Investors also tend, Xenos said, to put too much faith in large company growth stocks, such as the familiar companies in the Standard & Poor`s 500. If investments are concentrated in a single stock or even in a single portion of the market, they tend to bounce up and swing down more sharply than a well-diversified set of investments, which would include stocks, bonds and short-term cash investments. ``I think people are learning the meaning of risk,`` Xenos said. More than 42 million people have 401(k) accounts, which are sponsored by employers and which offer an array of investment choices. Cerulli found that 48 percent of the average account is invested in stocks. Typically, savers contribute part of their salary -- usually less than 10 percent -- and their employer may match part of that amount in company stock or cash. With fewer and few companies offering traditional pensions, these plans are now the primary source of retirement income for millions of Americans. For the last 20 years -- since 401(k) plans were introduced -- these savers have always seen their accounts go up in value. Not last year. An estimated $72 billion was erased, dropping total assets to $1.77 trillion, according to data Cerulli assembled from the Department of Labor, which keeps tabs on retirement plans, and the returns on a variety of investments. Some of that money, to be sure, was lost as every major stock market sector declined last year. But plenty of it was paid out to those who retired or changed employers, says Lisa Baird, a consultant at Cerulli Associates. ``There were a lot more distributions [of 401(k) account monies] last year as people rolled their money into an IRA for more flexibility,`` she said. Certainly, individuals do not seem to have lost faith in the notion of saving through 401(k) plans. Their very regular contributions, in fact, are being given credit for keeping the stream of money flowing into stocks this year, as the market has continued to head down. Strategic Insight, a financial research firm, estimates that $70 billion in new money has gone into stock mutual funds in the first half of this year and most of it came from retirement savings plan investors.