NEW YORK - For the first time in the 20-year history of the popular 401(k) retirement savings plan, the average account lost money last year, even after thousands of dollars of new contributions.
Despite some strengthening of stock prices in the last couple of months, recent estimates show, the declines persisted in the first half of this year.
The trend is exposing years of mistakes by employees, raising some questions about proposals to permit Americans to manage part of their Social Security accounts, and clouding the future of many employees' nest eggs for retirement.
The losses have led many individual workers to second-guess themselves, since they are the ones who decide how much to contribute to 401(k) plans and how to invest their money. There are some risks that people cannot control, such as stock-market declines and company contributions that shrink with corporate profits.
But a look at shifting account balances over the last decade shows that many people have grown overly dependent on stocks, do not contribute enough to retire when they expect to, and put too much into a single aggressive mutual fund or their own company's stock, financial planners and plan administrators said.
And relatively few employers offer much useful help to workers in making crucial investment decisions.
Still, many people seem eager to give Americans more control of their retirement funds. A special commission appointed by President Bush is exploring ways to carry out his campaign promise to permit Americans to manage a portion of their Social Security benefits. Many states are developing plans similar to the 401(k), so their employees can manage their money themselves.
For many workers, the 401(k) has long seemed to be a magical, ever-expanding account. The plans grew quite popular, partly because they coincided with the strongest and longest bull market in history. They provided benefits to workers at many smaller companies that did not have traditional pension plans, they encouraged saving, and they established a portable plan better suited for the modern, job-hopping work force.
But the last year has produced a gloomy crop of 401(k) statements, and that has employees wondering whether they made the right decisions in the first place.
The average account shrank to $41,919 in 2000 from $46,740 in 1999, according to a report from Cerulli Associates, a benefits consulting firm. Although comprehensive 401(k) account data will not be available for some time, the average account since has shrunk about $600 more, to about $41,300, according to a rough projection by one Cerulli analyst.
"You could be stupid in the last 10 years and make a lot of money," said Mark Bruggemeyer, a 45-year-old co-pilot for Continental Airlines. "Now you've got to buckle down and start learning all over again."
Mr. Bruggemeyer has more than 80 mutual funds to choose from in his 401(k) plan. This never seemed to be a problem before, because the two funds he had picked, almost randomly, kept going up. In the last year, though, the value of Mr. Bruggemeyer's technology fund has been cut in half, and his holdings in a diversified stock fund have fallen more than 12 percent.
Like many Americans, Mr. Bruggemeyer grew overly dependent on stocks. The average 401(k) account had 72 percent in stocks and stock funds in 1999, according to the latest data available from the Employee Benefit Research Institute, a Washington nonprofit group.
That stance reverses the conservative posture of investors a decade ago and appears somewhat aggressive when compared with the classic allocation of professional pension plan managers: 60 percent in stocks and 40 percent in bonds.
More recent information from Fidelity Investments, which handles a mix of small and large employers' plans as the United States' largest 401(k) administrator, shows an even more aggressive posture. The average Fidelity account had 19 percent in company stock on top of almost 62 percent in stock funds at the end of last year. Owning a large amount of a single stock is riskier than owning an aggressive stock fund since so much rides on the fortunes of one company.
This is not to say any particular worker should abandon stocks or pile into bonds, or that the typical pension fund mix should be copied by workers of various ages and incomes.
Moreover, most pension funds have declined along with the market. But professional pension trustees work zealously to balance risk and reward in traditional pension plans, and workers need to have a strategy and stick to it, financial planners say.
Beyond averages, there are signs of many flawed individual choices.
Between one-fifth and one-quarter of workers eligible for 401(k) plans do not participate at all, according to the Profit Sharing/401(k) Council.