401(k) participants continued to diversify investments in 2011, survey finds

401(k) plan participants continued to seek diversified portfolios in 2011, with 61% invested in equity securities and 34% invested in fixed-income securities, on average, according to the annual update of a joint study released by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI). The study, 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011, also found that target-date funds are playing an increasingly important role in that diversification.

Growth of target date funds

According to the study, 72% of 401(k) plans offered target-date funds in their investment lineup at year-end 2011, compared with 70% at year-end 2010 and 57% at year-end 2006. At year-end 2011, 13% of the assets in the EBRI/ICI 401(k) database were invested in target date funds, up from 11% in 2010 and 5% in 2006. In addition, 39% of 401(k) participants held target-date funds at year-end 2011, compared with 36% in 2010 and 19% in 2006.

“When planning their retirement savings strategy, participants increasingly use tools such as target-date funds, which are designed to offer a mixed investment portfolio of equity and fixed-income securities that automatically rebalances to be more focused on income over time, to get diversification,” said Sarah Holden, senior director of retirement and investor research at ICI and coauthor of the study. “The study’s findings highlight that 401(k) participants, particularly recent hires, are opting to diversify their account balances, either actively or as a result of plan design.”

Loan activity steady

The study shows that, at year-end 2011, 21% of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from the prior two years. Loans outstanding amounted to 14% of the remaining 401(k) account balance, on average, at year-end 2011, unchanged from year-end 2010, though loan amounts outstanding increased slightly from those at year-end 2010.

401(k) balances vary by age, tenure, salary

Age, tenure, and a number of other factors impact an individual’s 401(k) account balance at any point in time, the study notes. Among 401(k) participants in their 50s or 60s, the average account balance of the longest-tenured participants was more than eight times larger than that of those who are new to their jobs. At year-end 2011, the average 401(k) participant account balance was $58,991 and the median (mid-point) account balance was $16,649, with wide variation reflecting the many variables in retirement saving, including participant age, tenure, salary, contribution behavior, rollovers from other plans, asset allocation, withdrawals, loan activity, and employer contribution rates.

Source: EBRI press release #PR 1003, December 20, 2012.

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For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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