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401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2007
EBRI Issue Brief #324
Paperback, 52 pp.
PDF, 773 kb
Employee Benefit Research Institute, 2008
• The bulk of 401(k) assets continued to be invested in stocks. On average, at year-end 2007, about two-thirds of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. About one-third was in fixed-income securities such as stable value investments and bond and money market funds. Although these relative shares have changed little over the past 12 years, the underlying fund composition has changed over time.
• About two-thirds of 401(k) plans included lifecycle funds in their investment lineup at year-end 2007. New analysis shows that at year-end 2007, more than 7 percent of the assets in the EBRI/ICI database were invested in lifecycle funds and one-quarter of 401(k) participants held lifecycle funds. Also known as “target date” funds, they are designed to simplify investing and automate account rebalancing.
• New employees continued to utilize balanced funds, including lifecycle funds. Across all age groups, more new or recent hires invested their 401(k) assets in balanced funds, including lifecycle funds. At year-end 2007, 28 percent of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with 24 percent in 2006, 19 percent in 2005, and about 7 percent in 1998. At year-end 2007, almost 19 percent of the account balances of recently hired participants in their 20s were invested in lifecycle funds compared with 16 percent at year-end 2006.
• 401(k) participants continued to seek diversification of their investments. The share of 401(k) accounts invested in company stock continued to shrink, falling by 0.5 percentage point (to 10.6 percent) in 2007. That continued a steady decline that started in 1999. Recently hired 401(k) participants contributed to this trend: they were less likely to hold employer stock.
• Participants’ 401(k) loan activity was stable. In 2007, 18 percent of all 401(k) participants eligible for loans had a loan outstanding against their 401(k) account, the same percentage as at year-end 2006. Most loans tended to be small, amounting to 12 percent of the remaining account balance, on average, similar to year-end 2006.
• At year-end 2007, the average account balance in the EBRI/ICI database was $65,454, compared with $61,346 at year-end 2006. 401(k) account balances varied with participant age, tenure, and salary. Individuals with account balances of less than $10,000 were primarily young workers or workers with short job tenures. In contrast, those with account balances in excess of $100,000 were primarily older workers or workers with longer job tenure.
• The year-end 2007 average account balance in the database was 6.7 percent higher than the year before, but does not accurately reflect the experience of typical 401(k) participants in 2007. To examine the experience of 401(k) participants, one must control for the impact of 401(k) plans or participants joining and leaving the database year to year. As with previous EBRI/ICI updates, analysis of a consistent sample of 401(k) participants (those that have been in the same plan since 1999) is planned; this additional analysis is expected to be published in early 2009.
EBRI Research and Education Centers
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