Try this on for size. A new study shows that of some one million 401(k) portfolios, some 69 percent of participants have portfolios with inappropriate risk or diversification, 36 percent hold high concentrations of company stock, and 33 percent fail to contribute enough to receive the full company match. While groups of participants are taking full advantage of their 401(k) plans, participants with lower salaries, lower plan balances, and those closer to retirement tend to make the most costly mistakes.

Financial Engines, which provides independent investment advice and managed accounts, has released The Financial Engines National 401(k) Evaluation, a new report that assesses 401(k) participant portfolios to determine how well Americans are handling their plans. The report also estimates the costs associated with common investing mistakes.

In general, the study shows that the older the participant, the more company stock they are likely to hold. In fact, 43 percent of those over age 60 have more than 20 percent of their 401(k) portfolios in company stock, compared to only 28 percent of those under age 30. Extreme company stock concentrations follow a similar trend, with 25 percent of participants over age 60 holding portfolios with 50 percent or more invested in company stock, compared to just 13 percent of those under age 30. Fifteen percent of participants over age 60 have 80 percent or more of their portfolios in company stock.

The report points out that holding high company stock concentrations has a negative impact on the expected growth of a portfolio. Portfolios with more than 20 percent in company stock could expect an average of 18 percent less projected retirement wealth after 20 years, compared to those holding less than 10 percent in company stock (given the same starting balance and assuming no future contributions). In addition, portfolios holding 80 percent or more company stock can expect an average of 42 percent less projected retirement wealth after 20 years than those holding less than 20 percent in company stock (given the same starting balance and assuming no future contributions).

Moreover,while company stock is often a factor in participants not having appropriately diversified portfolios, participants are making other investing mistakes that are costing them projected retirement wealth. Of the 69 percent of participants in the report with inappropriate risk or inefficient portfolios, 38 percent have very risk-inappropriate or very inefficient portfolios. Just over 30 percent have portfolios that are both risk-appropriate and efficient.

Participants earning the lowest salaries are the most likely to make investing mistakes. More than half (53 percent) of participants with annual salaries below $25,000 have portfolios with very inappropriate risk and/or diversification, compared to 33 percent of those earning more than $100,000 per year.

Common reasons for inappropriate risk or diversification include high money market or stable value concentrations, age-inappropriate portfolios (i.e. too conservative for younger employees or too aggressive for older employees), or concentrations in a single asset class.

When it comes to 401(k) savings, 33 percent of active participants fail to save enough to receive the full company match. Sixty percent save enough to receive the full employer match but are saving below the IRS or plan limits, and only seven percent of all active participants save enough to come within $500 of the IRS or plan maximum allowed. Still, many participants are saving at healthy rates, with 25 percent of the entire sample saving 10 percent or more of salary. Across the sample, the most common employer match was 50 cents per dollar up to six percent of pay.

Younger participants and those with lower salaries or lower account balances tend to save the least. Nearly half (48 percent) of those under age 30 are failing to save enough to receive the full employer match, compared with 35 percent of those in their 30s, 31 percent of those in their 40s, 26 percent of those in their 50s, and 28 percent of those over age 60.

In terms of salary, 63 percent of those earning less than $25,000 per year fail to save enough to receive the full employer match, compared to 24 percent of those with salaries between $50,000 and $75,000, and 12 percent of those with salaries greater than $100,000 per year.

Finally, saving at least enough to receive the full employer match has a significant impact on projected retirement wealth. If the employee increased the contribution to six percent of salary (enough to receive the full typical employer match in the report), the participant is projected to have approximately $120,900 after 20 years--a difference of 158 percent. That’s appreciable!

For a copy of the report, go to www.financalengines.com.

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