For U.S. workers and the asset managers who look after their retirement savings, 2001 is likely to go down as the year of doubt.

After two decades of stock markets rising almost without interruption, mutual funds yielded healthy returns and privately managed retirement accounts swelled no matter where investors put their money. In the last two years, Americans have come face to face with an uncertain financial outlook as a bear market pummeled the major stock indexes.

The average retirement account in 2001 — as in the previous year — is likely to be flat or slightly smaller, compared with a year earlier as assets shrink under the weight of falling stock markets.

Investors also face uncertainty fueled by the country's first recession in 10 years, rising unemployment and a new sense of vulnerability in the aftermath of the Sept. 11 attacks.

And then there are the bankruptcies at corporate icons like Polaroid Corp. and Enron Corp. . Employees at those companies saw their retirement benefits evaporate after the value of company stock collapsed.

As a result, experts said, many workers may have to reevaluate how long to work, how much to save for retirement and what their lives will be like after they stop working.

"The markets are moving people back to a more realistic sense of what they can expect in the long term from what had been very inflated expectations," said Dallas Salisbury, president of the Employee Benefits Research Institute (EBRI).

The gathering uncertainty is likely to delay or cancel President Bush's plan to partially privatize Social Security, the country's main publicly funded retirement benefit. Under the plan, workers would invest a portion of the Social Security tax deducted from their pay into investment accounts they controlled.

Earlier this month, a presidential panel recommended putting off for a year any concrete steps to move forward with the plan. Commission members and the White House said the delay was aimed at giving the country time to debate three proposals contained in the final report on privatization.

High Stakes, Shrinking Accounts

Retirement savings, either 401(k)'s or Individual Retirement Accounts, are a crucial source of assets and income to the U.S. mutual fund industry. These accounts held $2.5 trillion, or 35 percent of all mutual fund assets at the end of 2000, according to the Investment Company Institute, or ICI, a fund industry trade group.

An analysis of 8.3 million investors by the ICI and the EBRI showed the average 401(k) retirement savings account shrank by 0.1 percent, or $76, from 1999 to 2000. While the drop appears small, it was the first time such a decline was ever recorded.

For workers in their 60s who are preparing to retire on what they have managed to accumulate, the drop was much larger, eliminating 5.8 percent, or $7,034, of a typical balance. In addition, the figures excluded 2 million workers who were new to the plans or were leaving the plans.

Including those people, the average account balance fell 12 percent to $48,988, from $55,502.

And despite evidence privately managed retirement accounts boost savings among eligible workers, recent data show not enough workers take part in the plans, many are not saving enough and, those who do, don't know how to manage their assets.

Recent studies by financial companies show workers preparing for retirement are not saving enough and don't know how to manage their accumulated assets.

"This report makes clear that the individual responsibility model for retirement income will be tested in the decades ahead," wrote Jack VanDerhei, a professor at the Temple University School of Business and the author of a study by the EBRI, which said retirees are more and more likely to outlive their retirement savings.

The recent debacle at Enron, in which thousands of the bankrupt Houston-based energy trading company's workers lost nearly $1 billion in retirement savings invested in Enron stock, illustrates how risky retirement savings can be if investors aren't well diversified. Many Enron workers invested nearly all of their 401(k) plan balances in Enron stock, only to see the assets evaporate over a matter of weeks amid a financial probe of Enron's dealings and a failed merger.

"I never received any counseling as far as my investments," said Roy Rinard, a 54-year-old Enron worker who said he lost more than $400,000 in his 401(k) account. "It would have benefited me to have gotten some advice."

Rinard said much of the fault for his losses is his own, but he doesn't absolve the system entirely.

"I'm a lineman. I'm not a stock broker. I had confidence in my company and I paid dearly for it," he said.

Reforms on the Way

Stories like Rinard's have drawn the attention of lawmakers and retirement advocates. Earlier this month, Senator Barbara Boxer, a Democrat from California, proposed legislation that would limit company stock to 20 percent of a 401(k) account.

It would also allow employees to sell company stock in the account within 90 days and cut an employer's tax incentive to use stock to match employee contributions to the account.

The mutual fund industry, which oversees 401(k) accounts, will have to manage investor expectations to avoid a loss of confidence, said fund industry consultant Geoff Bobroff.

Bobroff said the industry is capable of responding to these challenges, but warned against complacency.

"Hopefully we as an industry don't utter the words 'there's no other game in town,' because the moment we do that, is the beginning of the end of us," he said.