Accounts of “consistent 401(k) participants” grew 6.8% from 2007-2012, EBRI finds

The average account balance of workers who participated consistently in a 401(k) plan from year-end 2007 to year-end 2012 increased at a compound average annual growth rate of 6.8%, despite experiencing a significant decline in 2008, according to a new study by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI). The increase in account balances reflects several factors, including employer and worker contributions, investment returns, withdrawals, and loans.

The study examined the accounts of about 7.5 million consistent participants among the 24 million participant accounts in the EBRI/ICI 401(k) database, over the five-year period from year-end 2007 to year-end 2012. The study found that at year-end 2012, the average account balance of the consistent participants was 67% higher than the average account balance among all participants in the EBRI/ICI 401(k) database. Further, the consistent group’s median balance increased at a compound annual average growth rate of 11.9% over the period, to $49,814 at year-end 2012—almost three times the median balance across all participants at year-end 2012.

“This research provides a meaningful analysis of the potential for 401(k) participants to accumulate retirement assets because it examines how a consistent group of participants’ 401(k) accounts change over time,” said Sarah Holden, ICI’s senior director of retirement and investor research and coauthor of the study. “The research highlights that contributing and investing in a 401(k) plan consistently results in higher average account balances than the average balance for all plan participants.”

Growing importance of target-date funds

More consistent 401(k) plan participants held target-date funds at year-end 2012 than at year-end 2007, the study found. “The data confirm the continuing important role of target-date funds in 401(k) plans, revealing that a substantial core of consistent 401(k) participants who held at least some target-date fund assets in their account before the financial crisis, still did so at year-end 2012,” said Jack VanDerhei, EBRI research director and coauthor of the study. “At year-end 2012, nearly one-third of those holding any target-date fund assets invested all of their 401(k) balances in target-date funds,” he said.

At year-end 2007, 27.6% of consistent 401(k) plan participants held at least some target-date fund assets in their 401(k) accounts, though by year-end 2012, that share had risen to 32.1%. The study found that 43.7% of consistent 401(k) participants in their 20s had target-date funds in their 401(k) accounts at year-end 2012, compared with 28.4% of consistent 401(k) participants in their 60s.

Investment allocations

The study found that consistent 401(k) participants tend to concentrate their accounts in equity securities. On average, about three-fifths of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants, according to the study.

Source: EBRI press release, June, 2014.
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