What Does Consistent Participation in 401(k) Plans Generate?

July 2009
EBRI Issue Brief #332-SR
Paperback, 16 pp.
PDF, 400 kb
Employee Benefit Research Institute, 2009

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Executive Summary

EBRI/ICI 401(K) DATABASE: The annual EBRI/ICI 401(k) database update report is based on large cross-sections of 401(k) plan participants. Whereas the cross-sections cover participants with a wide range of participation experience in 401(k) plans, meaningful analysis of the potential for 401(k) participants to accumulate retirement assets over time must examine how a consistent group of participants’ accounts have performed over the long term. Looking at consistent participants in the EBRI/ICI 401(k) database over the eight-year period from 1999 to 2007:

  • The average 401(k) account balance increased at an annual growth rate of 9.5 percent over the period, to $137,430 at year-end 2007.
  • The median 401(k) account balance (half above, half below) increased at an annual growth rate of 15.2 per-cent over the period, to $76,946 at year-end 2007.

ANALYSIS OF A CONSISTENT GROUP OF 401(K) PARTICIPANTS HIGHLIGHTS THE ACCUMULATION POTENTIAL OF 401(K) PLANS. At year-end 2007, the average account balance among consistent participants was double the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was more than four times larger than the median balance across all participants at year-end 2007.

YOUNGER PARTICIPANTS OR THOSE WITH SMALLER INITIAL BALANCES EXPERIENCED HIGHER GROWTH IN ACCOUNT BALANCES COMPARED WITH OLDER PARTICIPANTS OR THOSE WITH LARGER INITIAL BALANCES. Among the consistent group, individual participant experience is influenced by three primary factors that impact account balances: contributions, investment returns, and withdrawal and loan activity. For example, the average account balance of participants in their 20s was heavily influenced by the relative size of contributions to the account balances and increased at an average growth rate of 36.0 percent per year between year-end 1999 and year-end 2007.

401(K) PARTICIPANTS TEND TO CONCENTRATE THEIR ACCOUNTS IN EQUITY SECURITIES. The asset allocation of the 2.4 million 401(k) participants in the consistent group was broadly similar to the asset allocation of the 21.8 million participants in the entire year-end 2007 EBRI/ICI 401(k) database. On average, about two-thirds of 401(k) participants’ assets were invested in equities, through equity funds, the equity portion of balanced funds, and company stock.

The data in this report extend only to year-end 2007; the EBRI/ICI data for year-end 2008 are not available at this time, so the sharp market downturn of 2008 is not reflected in this report. Those data are currently being analyzed and are expected to be published later in 2009.