Despite difficult market conditions that have yielded poor investment returns, individual investors are maintaining their retirement savings and continuing to invest in their 401(k) plans, according to Hewitt Associates' annual retirement study.

The human resources consulting and outsourcing company said employees are moving their 401(k) assets into less-risky investment mutual funds and some are taking hardship withdrawals, but few are emptying their retirement savings completely, despite higher unemployment.

"401(k) plan balances are taking an obvious hit in the current market environment, but it's encouraging to see that most employees are sticking to their long-term investment strategy and not making rash decisions that ultimately could derail their retirement goals," Pamela Hess, Hewitt's director of retirement research, said in a press release.

"The concerning behavior we are seeing, however, is some evidence of knee-jerk investment decisions, with a significant increase in the number of investment transfers immediately after the market drops," Ms. Hess said.

Hewitt, of Lincolnshire, Ill., said its survey of 2.7 million U.S. employees found that the average 401(k) plan balance has declined 14% this year, to $68,000, from $79,000.

In the past two months, employees on average have lost nearly 18% of their 401(k) plan savings, and some have lost more than 30%, the survey found.

Savings rates have fallen only slightly, to 7.8% this year from 8% in 2007, Hewitt said. Four percent of employees have terminated their 401(k) plan contributions, the survey found.

Though most employees continue to save, Hewitt's data shows that some are adjusting their investment mixes and moving money into safer funds.

The amount of 401(k) assets held in equities is at an all-time low, according to Hewitt, with 53.8% of assets, on average, compared with 68.1% a year earlier and a high of 74.2% in 2000.

In addition, while the number of employees making trades has risen slightly — 19.3% this year from 18.7% in 2007 — the amount of 401(k) assets being transferred has been significantly higher. To date, 5.3% of employees' 401(k) savings has been traded, versus 3.5% a year earlier.

In October alone, 1.25% of employees' 401(k) balances were traded, almost three times the historical average, Hewitt said.

Despite stable 401(k) savings rates, Hewitt's data shows that more employees are tapping into their 401(k) plans. More than 6% withdrew money from their plans this year, up from 5.4% a year earlier.

Hewitt said there was a 16% increase in hardship withdrawals. At some firms in financial services and other sectors that have been hit especially hard by the economy employees' hardship withdrawals exceeded 10% of the amount in the plan — nearly nine times more than the average 401(k) plan, Hewitt said.

Nonetheless, 401(k) loan activity has remained consistent; 22% of employees have a loan outstanding, the survey found.

Hewitt consults more than 3,000 large and midsize companies to help them develop and implement human resources business strategies covering retirement, financial and health management; compensation and total rewards; and performance, talent, and change management.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.