Jan September 2003 Feb EBRI Issue Brief (ISSN 0887—137X) is published monthly at $300 per year or is included as part of a membership subscription by the Employee Benefit Research Institute, 2121 K Street, NW, Suite 600, Washington, DC 20037-1896. Periodicals postage Figure A10 Figure A14 Figure A4 Figure A1 Figure A16 Figure 2 Figure A18 Figure A8 Figure A24 rate paid in Washington, DC. POSTMASTER: Send address changes to: Figure A7 EBRI Issue Brief, 2121 K Street, NW, Suite 600, Mar Figure A22 Figure A20 Figure 1 Figure 15 Figure 14 Figure 5 Figure A6 Figure A12 Figure 4 Figure 12 Figure 10 Figure 7 Figure 11 Average Asset Allocation for 401(k) Plan Participants Without Equity Fund Balances, Figure 13 Figure 8 Figure A2 Distribution of 401(k) Plans, Participants, and Assets, by Investment Options, 2002 Tenure Composition of Selected 401(k) Account Balance Categories, 2002 401(k) Plan Characteristics by Number of Participants: Washington, DC 20037-1896. Copyright 2003 by Employee Benefit Research Institute. All rights reserved, No. 261. 401(k) Account Balances Less Than $10,000, by Age and Tenure, 2002 Appendix: Additional Figures for the EBRI/ICI Asset Allocation Distribution of 401(k) Plan Participant Account Balances to Equity Funds, Percentage of Eligible 401(k) Plan Participants With Loans, by Salary, 2002 Ratio of 401(k) Account Balance to Salary, by Age and Tenure, 2002 401(k) Plan Average Asset Allocation, 1996–2002 Average Asset Allocation of 401(k) Accounts, by Plan Size and Investment Options, 2002 a Ratio of 401(k) Account Balance to Salary for Participants in Their 60s, by Tenure, 2002 EBRI/ICI Database: 401(k) Plan Characteristics, by Number of Plan Participants, 2002 Percentage of Eligible 401(k) Plan Participants With Loans, by Plan Size, 2002 Loan Balances as a Percentage of 401(k) Account Percentage of Eligible 401(k) Participants With Table of Average Asset Allocation of 401(k) Accounts, by Salary and Investment Options, 2002 Changes in All or Nothing 401(k) Plan Participant Asset Allocation, Distribution of 401(k) Account Balances, by Size of Account Balance, 2002 Average 401(k) Account Balance at Year-End 2002, by Age and Tenure, Changes in Participants’ Investment in Equity Funds, 1999–2002 401(k) Plan Asset Allocation, Account Average Asset Allocation of 401(k) Accounts, by Investment Options, 2002 Average Account Balances Among 401(k) Participants Present From Change in Average Account Balances Among 401(k) Participants Present From Asset Allocation Distribution of Participant Account Balance to Company Stock Percentage of Eligible 401(k) Participants With Loans, by Age, 2002 by Age and Tenure, 2002 a EBRI/ICI Database: 401(k) Plan Characteristics, by Plan Assets, 2002 a EBRI/ICI Database vs. Cerulli Estimates for All 401(k) Plans, 2002 (percentage of total) (percentage) (percentage of participants with account balances less than $10,000) a (percentage of total assets) by Age, Tenure, and Salary, 2002 (percentage) 25% (percentage of account balances) Balances for Participants With Loans, by Age, a (percentage) a a b b,c Apr Loans From the Plan, by Age, Tenure, by Investment Type, 1999 and 2002 (percentage of account balances) a a b (percentage of participants with account balances in specified ranges) (percentage of participants a ) a Among Participants Present From Year-End 1999 Through Year-End 2002 Year-End 1999 Through Year-End 2002, (percentage of account balances by Age and Tenure ) Year-End 1999 Through Year-End 2002, by Age and Tenure in 401(k) Plans With Company Stock, (percentage of account balances) by Age, 2002 20% a 350% (percentage of participants) a Tenure, or Account Size, 1996, 1999, and 2002 60% or Account Size, 1996, 1999, and 2002 3% 100% (percentage of participants ) 400% 21% b 7% Participant-Directed Retirement Plan Data Number (dollars) Average 25% 20% Plan Assets (percentage of participants) Contents Investment Options Offered by Plan b Plans Participants Assets b Average c 50% 5% GICs and >30 years GICs and May 20% 18% 18% GICs and 90% Percentage of Account Balance Invested in Equity Funds (percentage of plan assets) b >20 years b Balances, and Loan Activity in 2002 18% of Plan b Total b Total Total Account 20% 53 Age Cohort Tenure (Years) Balanced 1999–2000 BondTotal Money 2000–2001 Other Stable Equity Total 17% Balanced Company 2001–2002 Total Bond Money 1999–2002 Other Stable 17% Account b Company 45% Age Cohort Tenure (Years)The Employee Benefit Research Institute (EBRI) was founded in 1978. Its mission is 1999 2000 2001 2002 $160,000 Equity Balanced 17% Bond Money Other Stable 17% Company GICs and 100% 77.8% Zero 1–20% >20%–80% >80% Total 45% 51 >20–30 b Equity, Bond, Money, and/or Balanced Funds Participants Plans Participants 42.7% Assets28.6% Balance 20.6% Plan Size by Number of Participants >10–20 Funds Funds Funds Value Funds Funds Funds Stock Other Funds Unknown Funds Value Funds Total Stock 80% 50 Total Plan Assets Plans Participants Assets Balance SALARY ho we are Percentage in 2002 Funds Funds Funds Funds Value Funds Stock W 60s to contribute to, to encourage, and to enhance the development of sound employee benefit 16% Collection Pr 12% oject for Year-End 2002 16% Jun 15% 1999 Percentage of Account Balance Invested in Company Stock 20% 73.4% Equity Balanced Bond Money Other Stable Company 300% b 72.5% 50% 1996 1997 1998 1999 2000 2001 2002 72.3% 70.9% 16% Equity, Bond, Money, and/or Balanced Funds, and GICs 13% and/or 13% 20% 48 48 20s b 1996 1999 2002 1996 1999 2002 66.3% >10–20 40% 20s programs and sound public policy through objective research and education. EBRI is the only private, nonprofit, nonpartisan, All >5–10 26.2% 19.3% 69.0%4.3% 57.1% 80% ALL 32.1% 9.2% 36.6% 22.1% 100% 20s 50s All $9,571 $12,074 $14,409 $15,035 Age 70% Investment Options Offered by Plan NoneCerulli 1–20 21–40 Funds 41–60 Funds61–80 Funds 81–99 Funds 100 Value Funds Total in 1999Stock ALL PLANS 80%AGE COHORT 18% c PLANS WITHOUT COMPANY STOCK, GICs, Other Stable Value Funds OR OTHER STABLE VALUE FUNDS 54.6 23.5 17.6 $0–$250,000 14,526 64.7% 226,729 $1,680,902,739 $7,414 44 1 to 10 2002 7,786 49,261 $1,358,021,056 $27,568 Washington, DC-based organization committed exclusively to public policy research and education on economic security and 0–2 54.0 32.9 17% 11.1 127.3 17% 14% Jul by Sarah Holden, ICI, and Jack V 300% 10% >2–5 0–2 5,596 anDerhei, T 8,619 emple University 11,454 12,720 Cohort 1–100 Zero 20s 1–10% >10–20% 40s >20–30% 21.5% >30–40% 12.6% 20.0% >40–50%20.2% 46.5% >50–60% 15.1% 23.6% >60–70% 13.1% 1.4% >70–80% 10.3% 0.5% >80–90% 100% 13.6% >90–100% 0.2% 35% >5–10 30s $20,000–$40,000 47.7% 21.9% 18.5% 11.0% Equity, Bond, Money, and/or Balanced Funds, and Company Stock 1.2 17.6 21.5 14% >$250,000–$625,000 10,202 333,405 4,167,035,431 12,498 60% AGE COHORT 11 to 25 12,212 210,417 $4,655,591,912 1 $22,126 All employee benefit issues. EBRI’s membership includes a cross-section of pension funds, businesses, trade associations, labor 18% 18% 17% All 16% 14% 16% EBRI/ICI 101–500 13% 30s >2–5 16.7 13%18.5 13.7 13% 15.3 14.7 19.5 50.2 13.6 31.6 1.7 14.6 2.4 0.5 9.7 38.3 1009.3 0.7 40 >2–5 60s 11,386 13,496 15,474 15,742 by Sarah Holden, ICI, and Jack V >$40,000–$60,000 anDer55.4 hei, 16.1 Temple University and 18.5 9.3 Equity, Bond, Money, and/or Balanced Funds 60% Equity, Bond, Money, and/or Balanced Funds, and Company Stock, None 0–2 21.5% 2.0% 0.7% 54.8% 0.5%12.3% 0.4% 19.1% 0.3% 11.1% 0.5% 25.9% 30s >$625,000–$1,250,000 20% 20s 36.5 6,600 6.7 403,056 35.1 21.85,859,426,485 100 14,538 40% 250% 15% >2–5 30% 26 to 50 unions, health care providers and insurers, government organizations, and service firms. 9,072 327,262 $7,484,260,892 $22,869 501–1,000 40s 13.1 14.2 13.1 25.9 47.4 12.8 30.7 15.0 2.3 0.5 9.0 100 10.5 3.3 12% 12% 40s and EBRI Fellow >$60,000–$80,000 b >5–10 8.3 6.9 59.1 13.3–3.3 18.3 8.411.9 Aug 50% 5% >5–10 17,861 19,337 20,670 19,988 20s$120,000 40.4% and GICs 8.4% and/orOther Stable Value Funds 8.1% 7.5% 6.5% 6.1% 4.6% 1.6 3.1% 30.4 2.1% 40.3 1.5% 11.5% Equity, Bond, Money, and/or Balanced Funds, 1–20 30s 0.7 3.4 27.6 1.0 7.9 0.4 38.8 0.2 25.8 0.1 100 0.1 5.9 12% >$1,250,000–$2,500,00050s 4,918 461,354 8,754,302,312 18,975 20s 34% 1,001–5,000 50s 10.2 15.0 11.9 34.3 44.2 11.2 25.9 12.0 2.1 0.4 8.4 100 13.9 8.4 51 to 100 6,390 453,687 $11,002,269,366 $24,251 Age Cohort 60% >$80,000–$100,000 Age Cohort 60.8 12.8 17.4 8.0 11% b 0–2 years EBRI Fellow 40s 29.4 9.7 38.4 22.5 100 25% 30s 40%35.3 11.4 9.4 8.1 6.7 5.9 4.5 3.3 2.5 2.0 10.8 and GICs and/or Other Stable Value Funds 21–40 0.8 2.4 3.745.3 1.1 11.4 0.4 8.1 0.2 4.6 0.1 29.1% 8.6 >5,000 60s 7.4 16.8 11.2 45.0 37.4 17.6 7.5 1.5 9.8 0.3 4.8 100 17.5 21.6 40% 35% 50s >$100,000 40s 58.6 11.7 17.3 10.1 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 20s 12 11 10 20s 30 25 28 50s 33.8 11.1 35.8 19.4 100 Sep 30s 10% All 4.1 2.8 –6.2 0.5 0% >$2,500,000–$6,250,000 30s All 35,112 4,547 821,006 36,559 17,928,054,508 37,596 35,282 21,837 7 14 40s All 33.5 All a 13.9 9.4 7.8 10.9 15.1 6.6 12.5 20 5.7 33.7 40.3 4.4 25.2 9.2 3.310.9 9% 2.0 2.5 0.4 6.2 100 15.8 2.1 16.1 10.9 Equity, Bond, Money, and/or Balanced Funds, 10% 27.9% 41–60 1.0 1.0 4.0 5.3 1.2 0.4 0.3 13.2 All 54.8 12.3 19.1 11.1 assets could be identified were included in the final Investment options are grouped into eight Issue Brief The positive correlation between tenure and 20% no. 238 (Investment Company Institute Column percentages may not add to 100 percent because of rounding. • This Issue Brief EBRI’s work advances knowledge and understanding of employee benefits and their examines asset allocation, account balance, and loan activity of a large “401(k) Plan Asset Allocation, Account Balances, and for whom salary information is available, while their For convenience, minor investment options are not higher earners tend to contribute higher percentages 9.1 percent in 2000 (see Ibbotson Associates, 2003). The Overview and Summary 10% 25.9% ................................................... 3 60s 43.0 11.6Figure 4. Changes in Participants’ Investment in 29.0 16.4 100 option, in addition to the base options. Alternatively, account balance for the entire database as the experience 30% 101 to 250 The Employee 5,213 818,907 asset allocations vary widely across participants. For on the size of their 401(k) plans (measured by the with account balances greater than $100,000 have more plans is modest. About 31 percent of the plans have The principal findings as of year-end 2002 are as $21,119,909,414 $25,790 Account Balances Relationship Between Account Balances 200% 30% 30s 200% 20 30s 20 18 30s 22 18 22 0–2 32.3 20.4 4.9 67.2 b >$6,250,000–$12,500,000 2,071 791,773 18,218,791,484 60s 23,010 20% 16% 0–2 12,234 16,180 19,488 20,450 50s 33.1 15.7 9.2 7.4 6.0 5.2 3.9 3.0 2.4 2.0 12.1 and Company Stock Guaranteed investment contracts. 61–80 0.9 0.7 1.237.9 5.0 6.2 5.1 15.9 1.0 9.3 0.5 14.5 29.6% What we do importance to the nation’s economy among policymakers, the news media and the public. It does categories. (Account balances are net of loan balances EBRI/ICI database. and Employee Benefit Research Institute, October account balance is expected because long-term money fund allocations tend to be slightly lower. Loan Activity in 1998.” shown. of salary; therefore, one would expect the ratio of Russell 3000 fell about 21.5 ICI Perspective, percent in 2002, after Vol. 6, no. 1, and representative group of 401(k) plan participants as of year-end 2002 using data b 10, 11 14 Equity Funds, 1999–2002 .............................................. 7 251 to 500 c 19.9% 2,289 803,130 $20,845,474,292 $25,955 Oct almost 18 percent of participants are in plans that offer of “typical” 401(k) plan participants. Asset Allocation PLANS WITHOUT COMPANY STOCK, GICs, 40s TENURE (years) ............................................................ 22 OR OTHER STABLE VALUE FUNDS Benefit Research 22 20 3 example, 32 percent of participants hold no equity funds, than 10 years of tenure (Figure A14). follows: assets of $250,000 or less, and another 36 percent have 40s 16 14 16 15% number of plan participants; Figure A23). PLANS WITH GICs >$12,500,000–$25,000,000 AND/OR OTHER STABLE VALUE FUNDS >2–5 10.3 1,246 7.6 821,882 21,714,104,882 –2.5 15.7 26,420 Overview and 20s 8% >2–5 22,114 24,390 26,250 25,583 and Salar 60s20% y 36.8 16.7 7 8.0 6.1 4.7 4.1 3.1 2.3 2.1 1.8 14.1 Equity, Bond, Money, and/or Balanced Funds, 81–99 this by conducting and publishing policy research, analysis, and special reports on employee benefits issues; holding education TENURE (years) 0.8 0.5 0.6 1.1 3.9 4.3 0.8 12.1 al falling 11.5 percent in 2001 and 7.5 percent in 2000. and thus unpaid loan balances are not included in 2001). employees have had more time to accumulate an and account balance to salary to rise with salary. EBRI Issue Brief no. 218 (Investment Company • The average account balance 40% 14.4% among participants who The EBRI/ICI 13 1–100 0–2 gathered by the Employee Benefit Research Institute (EBRI) and the Investment 19.8 19.2 1 23.7 21 21.8 56.4 13.1 13.0 15.7 0.8 13.5 1.6 100 501 to 1,000 1,319 922,033 9 $28,304,197,467 $30,698 Over 50s $20,000–$40,000 view and Summar 17 18 17 y Endnotes 50s 38.9 13.5 8.8 12 5.5 29.5% 11 10% 12 For a comparison of the distribution of plans, >$25,000,000–$62,500,000 Institute (EBRI)997 See the Appendix (Figure A4) for the distribution of 1,422,818 39,411,701,647 27,700 company stock but no stable value products, while the Bibliography Account Balances There is wide variation in 401(k) plan participants’ ......................................................... 33% >5–10 b 9% 1.3 4 while 22 percent of participants hold more than A wide range of average account balances is plan assets of between $250,001 and $1,250,000. 0.8 Examining the interaction of both age and tenure –8.0 –6.0 EB 0%RI 0–2 35.3 6.7Figure 5. Changes in All or Nothing 401(k) Plan 37.8 20.3 100 Endnotes $80,000 >5–10 40,492 5.8% 41,029 41,374 38,066 All 35.1 briefings for EBRI members, congressional and federal agency staff, and the news media; and sponsoring public opinion surveys 13.3 9.1 7.6 6.3 5.5 4.2 3.1 2.4 2.0 5.1% 11.5 and Company Stock, and GICs 10% 100 and/or 2.2 0.7 0.6 1.0 4.6% 1.3 1.8 12.2 19.9 4.6% 101–500 >2–5 20.6 17.5 20.2 19.3 55.4 13.5 20.1 17.7 1.6 11.7 0.5 100 any of the eight asset categories described.) Equity account balance. However, a rollover from a previous 5% 19 19 19 19 Institute, January 2000, and Employee Benefit However, tax code contribution limits and >$40,000–$60,000 6 43.1 12.6 9.0 4.4 28.6 consistently held accounts since 1999 declined 10% Nov 1,001 to 2,500Company Institute (ICI) in their collaborative effort known as the EBRI/ICI Partici- 1,041 1,609,723 $54,079,960,434 $33,596 20% 60s 9 9 9 60s 10 9 10 This section examines how the ratio of 2002 account participants, and assets in the EBRI/ICI database with >2–5 6% 30.6 7.8plans, participants, and assets by investment options. “Funds” 37.3 include mutual funds, bank collective trusts, 24.2 100 remaining 30 percent of participants are offered both ________. “401(k) Plan Asset Allocation, Account account balances around the average of $39,885 at year- 150% <100 participants >10–20 100–500 and the Investment –1.0 501–1,000 80 percent of their balances in equity funds (Figure A8). reported for 401(k) type plans. Data for the universe with account balances reveals that, for a given age –1.5 1,001–5,000–9.4 >5,000 –11.7 6% 18 4% Loan Activity by Salar Asset Allocation y on employee benefit issues. >10–20 EBRI’s Education and Research Fund 2.5% 60,163 Participant Asset Allocation, by Investment Type, 59,557 (EBRI-ERF) performs the charitable, educational, and 58,650 53,112 Plan Loans Summar 501–1,000.................................................................... >5–10 y 16.5 1.7% 16.7 4 17 17.6 21.3 52.7 13.5 25.0 20.3 2.3 1.6% 1.9% 11.1 0.5 100 Other Stable Value Funds 32.1 3% 8.2 5.3 2.7 26.5 24.1 >$60,000–$80,000 Figure A5 44.8 11.2 8.8 3.3 30.4 funds consist of pooled investments primarily employer’s plan could interfere with this positive Research Institute, February 2000). nondiscrimination rules constrain these high-income 16 16 c 16 5% >$62,500,000–$125,000,000 >5–10 27.6 474 9.7 1,304,680 38.4 24.4 41,310,229,583 100 31,663 7.9 percent in 2002 and 10.0 percent since 1999. The the universe of 401(k) plans, see the Appendix (Figure EMPLOYEE pant-Directed Retirement Plan Data Collection Project. The EBRI/ICI 401(k) data- life insurance separate accounts, and any pooled Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. balances to 2002 salary varies with age, tenure, and Balances, and Loan Activity in 1999.” 1,001–5,000 >10–20 ICI Perspective, 12.3 14.6 14.1of 401(k)-type plans compiled by the Department of Database 28.7 52.6 14.2 27.0 18.7 2.7 12.9 0.3 100 0% scientific functions of the Institute. EBRI-ERF is a tax-exempt organization supported by contributions and grants. Company Institute 22 2% 2% 2% 14 company stock and stable value products, in addition to end 2002. About three-quarters of the participants in the Total in 2002 27.9 10.7 11.8 14.5 Furthermore, the percentage of participants holding no 1999–2002 group, average account balances tend to increase with The T 12.5 ypical 401(k) Plan Par ....................................................................... 8.1 14.4 ticipant 100.0 8 Average Asset Allocation of 401(k) Accounts, by Participant Age and Investment Options, 2002 >$80,000–$100,000 44.2 11.1 9.3 2.8 31.6 See the Appendix (Figure A5). In addition, Figure A6 1% investing in stocks. These funds include equity acorrelation because a rollover could give a short- 100% >10–20 29.3 11.3 Salary Range individuals’ ability to save. The contribution limits 38.2 21.2 100 13 >$125,000,000–$250,000,000 313 1,550,565 54,034,467,883 34,848 Dec Includes the 7.4 million participants in plans with company stock. 2,501 to 5,000 448 25% 1,577,083 $58,758,299,436 36% $37,258 The EBRI/ICI Database A1). The Appendix is available at www.ebri.org. change in a participant’s account balance is a result of 16 Tenure (years) >5,000 None >20–30 100 percent ................................................... base is the most comprehensive source of 401(k) plan participant-level data available None 100 percent 9.8 13.5 None 4 10.5Loan activity varies with salary. Participants earning 100 percent • investment product primarily invested in the security The average asset allocation of 401(k) participants to 35.4 56.8 Tenure (years) None 27.9 9.3 100 percent 20.7 2.4 0.3 8.5 None 100 12 100 percent 1 4% 2 11 Vol. 7, no. 1, and >$100,000 40s EBRI Issue Brief All no. 230 (Invest- 0.2 Labor from the Form 5500 for 1998 imply an average Ibbotson Associates. –0.8 46.5 a 11.5–7.9 SBBI (Stocks, Bonds, Bills, and 8.3 3.2–8.5 28.8 11 11 salary. The ratio of participant account balances to 0% Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 40s All (ICI) in a collabo- 66,702 66,854 66,299 61,033 the base options. b 2002 EBRI/ICI database have account balances that are The Employee Benefit Research Institute is a (percentage of account balances) equity funds tends to increase with age. In contrast, the tenure. For example, the average account balance of BENEFIT 20% >20–30 35.4 12.2presents asset allocation by salary and investment 35.2 17.2 100 0% Bloomberg Data mutual funds, bank collective trusts, life insurance tenure employee a high account balance. There is Row percentages may not add to 100 percent because of rounding. >$250,000,000 . New York, NY: Bloomberg, L.P. 416 (elective deferral limits in Internal Revenue Code 7,371,917 405,511,798,460 55,008 Figure 6. Average Asset Allocation of 401(k) Accounts, a All >30 9 6.3 14.3 7.9 48.3 54.8 8 12.3 21.5 19.1 1.4 11.1 0.3 100 The September 2003 5,001 to 10,000 EBRI Issue Brief covers the year- 258 1,777,850 1 $72,631,475,411 $40,854 0–2 All Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 6 5 4 indicated (see pages 4–5 for definitions of the 0–2 45.3 11.4 8.1 27 4.6 29.1 24 27 contributions, investment returns, withdrawals, to date, containing 15.5 million active 401(k) plan participants in 46,310 plans with between $40,001 and $100,000 are more likely to have a Participants in 401(k) plans cover wide ranges of age and bequity securities continued to move lower in the 2002 c 14 ment Company Institute, January 2001, and Source and Type of Data 10%Minor investment options are not shown; therefore, row percentages will not add to 100 percent. 0–2 .............................................. 28.3 4 account balance (including loan balances as a part of Inflation) 2003 Yearbook: Market Results for 1926– Sarah Holden, senior economist, Research 18.0 4.6 58.4 Equity Funds >30 Bond Funds 45.1 Company Stock Participants 11.3 29.1 Balanced Funds 14.5 100 GICs and Other Stable salary is positively correlated with age and tenure. nonprofit, nonpartisan, public policy research 0–2 15,314 19,654 23,187 24,265 For the distribution of plans, participants, and assets lower than the average. Indeed, 45 percent of partici- rative effort have gathered annual data on 401(k) 100% 20s 8 8 8 30s 8 8 40s percentage of participants holding no equity funds tends options and Figure A7 presents asset allocation by plan participants in their 60s with up to two years of tenure 50s 60s All Ages 7 Sum of participants shown in bold type: 71 percent of participants All 10.9 15.1 12.5 33.7 25.2 2.0 0.4 100 separate accounts, and other pooled investments. some discernible evidence of rollover assets among b (IRC) Sec. 402(g); total contribution limits in IRC b 2003 7 6 6 6 by Participant Age, 2002 ................................................ 8 R Guaranteed investment contracts. ESEARCH >10,000 282 6,959,832 investment categories used in this report). $338,351,355,734 $48,615 GICs and b end 2002 data gathered by the Employee Benefit 2% >2–5 15 13 12 EBRI Issue Briefs Source and T >2–5 are monthly periodicals providing expert evaluations of ype of Data 24 22 25 (percentage of participants) 5 5 5 5 5 5 Value Funds Choi, James J., David Laibson, Brigitte C. Madrian, Employee Benefit Research Institute, February borrowing, and loan repayments. b >2–5 $618.6 billion in assets. 10.3 account assets) per loan outstanding than those earning more or less (Figure 2002 Department at the Investment Company Institute tenure. Sixty percent of participants are in their 30s or 6.9 . Chicago, IL: Ibbotson Associates, 2003. EBRI/ICI database, reflecting the performance of the –2.0 active participant of $41,520 (U.S. 15.5 $40,000 organization, which does not lobby or take positions on >2–5 26,765 29,519 31,558 30,919 Participants in their 60s, having had more time to by plan assets see the Appendix (Figure A2). Distribution of Plans, Participants, and Assets PLANS WITH GICs AND/OR OTHER STABLE VALUE FUNDS size and investment options. 4 4 participants since 1996 from a wide variety of 401(k) All 46,310 15,509,185 618,590,815,415 39,885 Asset Allocation by Investment Options pants have account balances of less than $10,000, while PLANS WITH COMPANY STOCK to fall as salary increases. is $17,892, compared with $146,211 for participants in Similarly, bond funds are any pooled account the participants with account balances greater than Section 415(c)); and nondiscrimination rules (Actual Age Cohort Equity Balanced Bond Money Other Stable Company 100% O SALARY 2 ur publications employee benefit issues and trends, as well as critical analyses of employee benefit >5–10 24 23 21 Investment Category >5–10 23 18 23 7 and Andrew Metrick. “Defined Contribution Pensions: 2001). Research Institute (EBRI) 1–100 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. >5–10 and the Investment Company 2.2 Department of Labor, Winter 2001–2002), a figure (ICI) and Jack VanDerhei, Temple University, 0.7 38.8 16.9 –7.1 11.1 7.8 –4.5 24.4 legislative proposals. A24). Among participants with a loan outstanding, loan Figure 7. Average Asset Allocation of 401(k) Accounts, 40s, while 11 percent of participants are in their 20s and equity markets. Nevertheless, equity securities Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 3 >5–10 50,493 51,600 51,954 48,241 INSTITUTE $20,000–$40,000 27% The reported account balance represents retirement 32.0 7.6 12.2 11.4 36.4% accumulate assets, tend to have higher ratios, while by Plan Size ................................................................ ® • The average asset allocation of 401(k) participants to equity securities continued to 5 Funds Funds Funds Funds Value Funds Stock 15 plan record keepers. This Issue Brief provides an update 23 primarily invested in bonds, and balanced funds are $100,000 as 1 10 percent of participants have account balances greater a percent of them have two or fewer $20,000–$40,000 37.3 13.1Investment Company Institute. Deferral Percentage and Actual Contribution their 60s with more than 30 years of tenure (Figure Participants with no equity fund balances may still 34.8 14.8 100 Quarterly Supplemen- • The average account balance tended to increase in Figure 9Several EBRI and ICI members provided records on At the end of 2002, approximately 60 policies and proposals. Each issue, ranging in length from 16–28 pages, thoroughly explores one topic. percent of The percentage of participants holding no equity EBRI Notes is a monthly and Age, Salar 0% Sample of 5.3 million participants with account balances at the end of each year from 1999 through 2002. a 3 Ally, or Plan Size 46,310 14% 15,509,185 $618,590,815,415 $39,885 101–500 >10–20 27 28 26 43.9 >10–20 14.1 10.2 6.6 15 23.413 16 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Plan Rules, Participant Decisions, and the Path of Institute (ICI) >$40,000–$60,000 0% Row percentages may not add to 100 percent because of rounding. in their collaborative effort—the EBRI/ >10–20 –1.8 that is within 12 Employee Benefit Research Institute (EBRI) Fellow. –2.5 29.5 11.4 percent –9.7 13.8 of the $47,004 average 11.6 –13.5 31.2 0% by Investment Options, 2002 ......................................... 9 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 0% >10–20 92,802 ratios tend to decrease as salary increases, falling from assets in the 401(k) plan at the participant’s current 7 percent are in their 60s (Figure A3). The median age of remained the bulk (62 percent) of 401(k) plan assets. 91,161 88,926 80,279 2 b >$40,000–$60,000 32.5 12.6 37.8 17.2 100 those in their 20s have the lowest ratios (Figure A18). Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 50% move lower in the 2002 EBRI/ICI database, reflecting the performance of the equity Size of Account Balance pooled accounts invested in both stocks and bonds. years of tenure and 2 19.9 percent of participants held 100 percent of their Investment Company Institute. “Mutual Funds and than $100,000 (Figure A12). The variation in account on asset allocation, account balance, and loan activity as Asset Allocation Distribution of 401(k) Participant Account Balance to Equity Funds, by Age, 2002 b percent of them have between have exposure to the stock market through company tal Data 60s. Participants in their 20s held only about 23 percent Percentage (ADP/ACP) nondiscrimination rules in A15). Similarly, the average account balance of partici- . 7% The Investment Company Institute is the national Percentages across the row may not add to total because of rounding. periodical providing current information on a variety of employee benefit topics. EBRI’s Washington Bulletin provides sponsors balanced mutual fund assets are invested in equities 2002 for young participants and those with lower 501–1,000 funds also tends to increase with tenure (see the active participants in 401(k) plans they administered for 44.2 13.1 8.9 5.5 26.7 ALL AGES COMBINED 2% b Asset Allocation >20–30 >$60,000–$80,000 Guaranteed investment contracts. ................................................................ 0–2 >2–5 25 27 25>5–10 5 >20–30>10–20 30.0 12.4>20–30 13.2 11 11.0 10>30 29.511 $20,000–$30,000 >$40,000–$50,000 >$60,000–$70,000 >$80,000–$90,000 >$100,000 Least Resistance,” NBER Working Paper >20–30 . No. 8655. –2.1 balance estimate from the 1998 EBRI/ICI database. Special thanks to Luis Alonso, research associate at –3.0 –8.9 –13.6 ICI Participant-Directed Retirement Plan Data Collec- ac Equity Funds Balanced Funds >$60,000–$80,000 Company Stock 25.2 12.5 Bond Funds 42.6 19.7 Money Funds 100 GICs and Other >20–30 97,251 employer. Retirement savings held in plans at previous 95,167 92,286 84,046 18 percent for participants earning $40,000 or less to the participants in the 2002 EBRI/ICI database is 43, the Includes the 5.3 million participants with accounts at the end of each year from 1999 through 2002. A given participant may b 80% 4 e counted in multiple investment 1,001–5,000 Percentages in column may not add to total because of rounding. 45.6 11.0 7.2 3.9 30.8 Company stock is equity in the plan’s sponsor (the Holden and VanDerhei (September 2003) discusses the two and five years of tenure. the U.S. Retirement Market in 2002.” association of the U.S. investment company industry. Its In addition, for any given age and tenure combina- Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. with short, timely updates on major federal developments in employee benefits. markets. Nevertheless, equity securities remained the bulk (62 ICI Fundamen- (percentage of participants) 3% Figure 8. Asset Allocation Distribution of Participant IRC Secs. 401(k) and 401(m)) aim to assure that 1% EBRI’s Fundamentals of Employee Benefit percent) of 401(k) plan (see Investment Company Institute, accounts in equity funds. At year-end 2002, 12.2 percent balances partly reflects the effects of participant age, of year-end 2002. Investment Options >$80,000–$100,000 In addition, this update provides a Quarterly stock or balanced funds. Indeed, 52 percent of partici- Appendix, Figure A8). of their accounts in fixed-income securities (bond funds, pants in their 40s with up to two years of tenure is 30.1 14.6 14.4 11.1 25.6 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. tenure. These participants tend to have lower bal- year-end 2002. These plan administrators include • Analysis of the portion of account balances held in >30 13 17 15 >30 7 Stable Value Funds 9 10 4 >$80,000–$100,000 Cerulli 23.3 12.0 44.0 20.7 100 Cambridge, MA: National Bureau of Economic Re- categories. For example, a participant who is 100 percent invested in equities will be counted as “none” in each of the other Profit Sharing/401(k) Council of America (2002) ________. “Redemption Activity of Mutual Fund EBRI, who managed the database. In addition, investment categories. Changes in Asset Allocation Over Time ..................... 7 Years of Tenure employers or rolled over into individual retirement tion Project. >5,000 This Appendix provides supplementary Salary Range 47.6 8.6 6.8 3.1 31.9 Equity, Bond, Money, and/or Balanced Funds 10 percent for participants earning in excess of $100,000 same as in 2001. Thirty-eight percent of the participants 54.8% 12.3% 19.1% 11.1% >$100,000 Programs offers a straightforward, basic explanation of employee benefit programs in the private and public sectors. 32.5 12.8 15.0 11.0 25.3 The EBRI employer). Money funds consist of those funds tals membership includes 8,673 open-end investment . Vol. 12, no. 1 (Investment Company Institute, Investment Category employees of all income ranges attain the benefits of 6 tion, the ratio of account balance to salary varies impact of investment options on participants’ asset Supplemental Data) b Less Than $10,000 . assets. >$40,000–$50,000 Account Balance to Company Stock in 401(k) Plans More Than $100,000 unique opportunity to observe how a large and represen- >$100,000 20.9 11.9 44.0 23.3 100 of participants continued to hold 100 percent of their 15 tenure, contribution behavior, rollovers from other plans, pants with no equity funds have investments in either 24 GICs, and other stable value funds, and money funds $11,112, compared with $79,333 for participants in their ances and contributions are large relative to these Not all participants are offered these investment options. See Figure A4 in the Appendix. mutual fund companies, insurance companies, and equity funds among participants with accounts at the withdrawals, borrowing, and loan repayments. search, December 2001. Two possible explanations for the low account All 50s All –3.3 suggests that the average account balance (also Owners.” thanks to Stefan Kimball at ICI who assisted in –3.2 45.3 ICI Fundamentals, 11.4 –9.0 8.1 Vol. 10, no. 1 (March 4.6 –14.8 29.1 $0 See the Appendix (Figures A9 and A10). accounts (IRAs) are not included in this analysis. Equity, Bond, Money, and/or Balanced Funds, 50s All 103,626 100,241 97,030 88,332 tables and charts for the September 2003 All EBRI Issue Number of Participants in Plan 37.9 6.2 15.9 9.3 29.6 Asset Allocation by Age at Year-End 2002 Databook on Employee Benefits ................. is a statistical reference volume on employee benefit programs and work force related issues. 9 c (Figure A25). have five or fewer years of tenure, while 6 percent have designed to maintain a stable share price. Stable June 2003). companies (“mutual funds”), 588 closed-end investment Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. EBRI/ICI the 401(k) plan. 0% Figure A11With Company Stock, by Age, 2002 ............................ 10 somewhat with salary. For example, among participants allocations in aggregate. Figure A5 presents the analysis Guaranteed investment contracts. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 16 accounts in equity funds. In addition, 2.2 percent of asset allocation, withdrawals, loan activity, and em- tative sample of 401(k) participants has fared during b company stock or balanced funds (Figure A9). As a combined), while those in their 60s invested 40s with more than 20 years of tenure. The increase in To examine the changes in asset allocation, partici- Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Account Size Account Size balances. For example, the average account balance • Analysis of the portion of account balances held in equity funds among participants Percentage of Account Balance Invested in Equity Funds consulting firms. Although the EBRI/ICI project has end of each year from 1999 through 2002 suggests Unless otherwise indicated, all asset allocation balances among this group are: (1) that their and GICs Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. and/or Other Stable Value Funds 0–2 >2–5 0–2 28.0>5–10 including loans) for plan sponsors participating in 2001). preparing the graphics. 17.6>10–20 45.3 11.4 5.3>20–30 8.1 4.6 58.4 On average, partici- 29.1%>30 A sense of the relationship among the three compo- 60% Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 0–2 16,615 21,261 24,993 26,315 is equity in the plan’s sponsor (the employer). Money 25 8 a b Brief. companies, 106 exchange-traded funds, and six sponsors a 0–2 >2–5 >5–10 >10–20 >20–30 >30 value products such as guaranteed investment Holden, Sarah, and Jack VanDerhei. “401(k) Plan 401(k) Plan Participant Account Balances, For the update of the analysis of account balances at more than 30 years of tenure. The median tenure at the Account balances are net of unpaid loan balances. 1996–2002 Asset Allocation by Investment Options c ..................... 9 PLANS WITH COMPANY STOCK Minor investment options are not shown. in their 20s, the ratio tends to increase slightly with of asset allocation by investment option and also by age Equity, Bond, Money, and/or Balanced Funds, Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. th 18 Changes in Asset Allocation Over T participants had increased their allocation to equity ployer contribution rates. Information in the EBRI/ICI several years of slow economic growth and a severe bear PLANS WITH COMPANY STOCK AND GICs <$10,000 a 12 AND/OR OTHER STABLE VALUE FUNDS 11 ime 11 result, many participants with no equity funds have 48 percent of their accounts in these assets. The ten- account balance as tenure increases tends to be largest <$10,000 39 37 37 Age pants are placed into seven groups based on the averages are expressed as a dollar-weighted average. employer’s 401(k) plan has only recently been Profit Sharing/401(k) Council of America. rose 4.3 percent in 2002 for participants in their 20s >2–5 with accounts at the end of each year from 1999 through 2002 suggests that most 45 12.0 Annual collected data from 1996 through 2002, the universe of their 2001 survey, which includes profit-sharing and Figure 9. Asset Allocation Distribution of 401(k) Plan-specific information on loan provisions is 7.3 that most participants did not actively change their –1.0 19.0 Row percentages may not add to 100 percent because of rounding. pants in the 2002 nents can be seen in the change in average account b >2–5 28,341 31,746 34,069 33,719 2 funds consist of those funds designed to maintain a of unit investment trusts. Its mutual fund members 1–1003 32.5 9.0 11.3 10.3 36.0 contracts (GICs)—insurance company products that Asset Allocation, Account Balances, and Loan Activity Guaranteed investment contracts. ________. “401(k) Plan Participants: Characteristics, year-end 2002 see the Appendix. Figure A11 presents a Thus, unpaid loan balances are not included in any of The Employee Benefit Research Institute is a $20,000–$40,000 and Company Stock Years of Tenure current employer is seven years, one year longer than 37.9 24.7 6.2 12.6 15.9 4.6 9.3 1.9 27.3 29.6% 28.6 Distribution of Participants’ Company Stock Years of Tenure Plan Loans salary for low-to-moderate salary groups (Figure A19). of participant. $10,000–$20,000 26 24 22 Average $10,000–$20,000 32 30 31 Cohort market in stocks that caused broad market indexes to Zero 1–10% >10–20% >20–30% >30–40% >40–50% >50–60% >60–70% >70–80% >80–90% >90–100% funds to 100 percent at year-end 2002 from lower established (indeed, 49 Survey of Profit Sharing and 401(k) Plans: Reflecting database can be used to examine the relationship >5–10 percent of all 401(k)-type 4.1 Figure A15 exposure to equity-related investments through company combination plans as well as 401(k) plans, is dency of younger participants to favor equity funds and percentage of their account balance invested in equity available for the majority of the plans in the sample for participants in their 50s and 60s. 1.0Asset –6.1 –1.3 who had an account since 1999. participants did not actively change their asset allocations between 1999 and 2002. Contact EBRI Publications, (202) 659-0670; fax publication orders to data providers varies from year to year. Thus, aggregate Participant Account Balance to Equity Funds, asset allocations between 1999 and 2002. ® 17 >5–10 55,471 57,753 58,343 EBRI/ICI database 54,769 balances by age and tenure group. In our consistent 101–500 38.8 10.4 15.8 18.7 14.6 manage assets of approximately $6.8 trillion, accounting Equity, Bond, Money, and/or Balanced Funds, For example, Investment Company Institute (Spring stable share price. Stable value products such as guaran- >$40,000–$60,000 Figure A13 comparison of the median and average account balances 29.7 11.9 4.6 2.0 25.4 26.1 guarantee a specific rate of return on the invested in 2001.” $60,000 ICI Perspective, Vol. 9, no. 2, and EBRI IssueFigure 6Contributions, and Account Activity.” nonprofit, nonpartisan, public policy research the eight asset categories described. ICI Research This section examines changes in asset allocation of a the median tenure in the 2001 EBRI/ICI database. 40% Allocations, by Age >$20,000–$30,000 ................................................... 26 26 2210 >$20,000–$30,000 28 26 28 However, at high salary levels the ratio tends to decline Salary information is available for a subset of S Average 401(k) Account Balance, by Age and Tenure, 2002 b plans in existence in 1995 were established after allocations at year-end 1999. On net, the percentage of 2001 Plan Year Experience between account balances and age, tenure, and salary of decline nearly 40 percent between year-end 1999 and 501–1,000 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. ubscriptions/orders >10–20 . Chicago, IL: Profit Shar- –0.8 (202) 775-6312. Subscriptions to stock and/or balanced funds (Figure A10). approximately $70,300. older participants to favor fixed-income securities holds funds at year-end 1999. The seven groups corresponding (including virtually all of the small plans). Some –2.4 39.5 The distribution of account balances underscores 7.6 –8.6 13.4 EBRI Issue Briefs 13.8 –11.6 are included as part of 24.1 $55,502 by Age, 2002.................................................................. 10 and Company Stock, and GICs and/or >10–20 10 105,779 figures in this report generally should not be used to 104,903 102,358 93,522 >$60,000–$80,000 33.4 11.1 4.8 2.1 had 62 percent of 24.7 23.3 group of 5.3 million participants, the average account for approximately 95 percent Age Composition of Selected 401(k) Account Balance Categories, 2002 of total industry assets, 2000) finds that 81 percent Average Asset Allocation of 401(k) Accounts, by Participant Age, 2002 of 401(k) plan households • Participants’ allocations to company stock remained in line with previous years. About in the EBRI/ICI databases from 1996 to 2002 and capital over the life of the contract—and other stable Brief teed investment contracts (GICs) no. 255 (Investment Company Institute and and other stable Series organization, which does not lobby or take positions (Spring 2000). a 9 • group of participants who held accounts at the end of The average account balance for older and longer • The poor stock market performance does not seem to 8 Salary information available for a subset of participants 1,001–5,000 >$30,000–$40,000 Age and tenure cohorts are based on participant age and tenure at year-end 1999. 5 25 26 23(dollars) 39.2 >$30,000–$40,000 8.9 14.2 11.3 23 23 25.4 25 EBRI membership, or as part of a $199 annual subscription to EBRI Notes This system of classification does not consider the and EBRI Issue Briefs. Individual copies are available somewhat. A similar pattern occurs among participants participants in the 2002 EBRI/ICI database. 1989 (U.S. Department of Labor, Spring 1999, table ing/401(k) Council of America, 2002. >$80,000–$100,000 Other Stable Value Funds >20–30 Because –4.2 plans without this information are classified as –4.7 32.1 35.8 8.2 9.9–9.9 5.3 5.0 2.7 1.9 –17.7 26.5 24.0 24.1 22.9 20s participants with their full account allocated to equity participants. Distribution of Participants’ Equity Fund year-end 2002. 36.5% 3.0% 3.7% 4.7% 5.2% 7.1% References up even when accounting for investment options offered to the percentages invested in equity funds are: none, the effects of age and tenure on account balances. In a a 5.9% 6.0% 6.3% 4.1% 17.6% >20–30 151,840 145,485 138,658 124,924 11 (percentage) estimate time trends, unless this report indicates 10 $49,024 and represent more than 90 million individual b (percentage of account balances) plan balances balances of participants who were younger or had fewer surveyed made no allocation changes in the 12 months $47,004 Figure A12 presents the distribution of 401(k) account Allocation Employee Benefit Research Institute, March 2003). value funds—synthetic GICs (a portfolio of fixed- half of the participants in the EBRI/ICI year-end 2002 database are in plans that offer Figure 10. Average 401(k) Account Balance at For an analysis of the change in account balances of on legislative proposals. value funds Sample of 5.3 million participants with account balances at the end of each year from 1999 through 2002. are reported as one category. The “other” >5,000 37.6 5.6 16.3 8.8 30.7 each year from 1999 through 2002. Analyzing a consis- tenure participants tended to decline in 2002, as Figure 3 have affected other asset allocation patterns. For $50,000 >$40,000–$50,000 >$100,000 with prepayment for $25 each (for printed copies) or for $7.50 (as an e-mailed electronic file) by calling 17 24 26 23 number of distinct investment options presented to a indicates that the median annual salary among that >$40,000–$50,000 33.0 8.9 5.4 22 1.9 20.7 20 29.622 Figure A19 Figure A3 B.10), or (2) that the employee only recently joined The EBRI/ICI Database >30 –9.5 Figure A21 Poterba, James M. “Lessons from Enron: Employer having a loan provision if any participant in the plan –6.1 –11.5 –24.8 asset allocation is influenced by the investment options in their 60s (Figure A20). 30s Allocations, by Age 27.6 ................................................... 3.8 4.0 5.1 5.7 10 7.6 6.6 6.9 7.0 5.0 20.8 Data gathered for year-end 2002 show that while c >30 160,917 145,555 136,657 120,987 funds edged down between 1999 and 2002. shareholders. by the 401(k) plan sponsor. 1 percent to 20 percent, 21 percent to 40 percent, given age group, fewer years of tenure means a higher preceding the survey (August 1997 through September b otherwise. Records were encrypted to conceal the iden- balances by size of account balance at year-end 2002. All 20% Data are from Figure 12. 37.9 6.2 15.9 a9.3 invested directly or 29.6 income securities “wrapped” with a guarantee to years of tenure tended to increase between year-end U.S. Department of Labor. Pension and Welfare the group of participants with accounts at the end of PLANS WITHOUT COMPANY STOCK, GICs, All company stock as an investment option. More than half of the participants in these OR OTHER STABLE VALUE FUNDS Year-End 2002, by Age and Tenure, Among 32.1 8.2 6 5.3 2.7 26.5 24.1 category is the residual for other investments such as Domestic Stock Market Indexes, December 1996–December 2002 Figure A23 3 $160,000 EBRI or from www.ebri.org. Change of Address: 401(k) Participants, by Age or Tenure, 2002 EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037, (202) tent group of participants removes the effect of investment returns are more significant than contri- >$50,000–$60,000 Ratio of 401(k) Account Balance to Salary for Participants in Their 20s, by Tenure, 2002 5% 24 25 22 given participant, but rather the types of options example, younger participants still tend to hold a >$50,000–$60,000 19 18 20 Availability of 401(k) Plan Loans, by Plan Size, 2002 group is $27,153. _________. “Appendix: Additional Figures for the the plan. In either event, job tenure would not Stock and 401(k) Plans.” In “Papers and Proceedings had an outstanding loan balance. This may The Investment Company Institute is the national $43,215 40s 29.4 5.0 4.7 5.6 6.0 8% 7.7 6.5 6.4 6.2 4.3 18.2 available to participants, Figure A6 presents asset $41,156 the portion of 401(k) balances invested in equities has In sum, despite the ongoing bear market in equi- 41 percent to 60 percent, 61 percent to 80 percent, percentage of participants with account balances of less Allocations to company stock continue to show a 1998). In addition, Investment Company Institute Relationship of Age and T Age enure to a b 3 tity of employers and employees but were coded so that provide benefit payments according to the plan at Benefits Administration (now Employee Benefits Figure A17 26 each year from 1999 through 2002, see Holden and a indirectly in equity 1999 and year-end 2002. For example, the average Loan Balances as a Percentage of 401(k) Account Balances for Participants With Loans, (month-end level) $39,885 Account Balances ............................................................ 775-9132; fax number, (202) 775-6312; e-mail: Publications Subscriptions@ebri.org. plans held 20 percent or 11 less of their account balances in company stock, including 35 GICs Participants Present From Year-End 1999 and 15% Membership Information: Inquiries real estate funds. The final category, “unknown,” con- In this effort, known as the EBRI/ICI Participant- (percentage of participants) (percentage) Characteristics of Par th ticipants with >$60,000–$70,000 $37,323 23 b 25 (percentage of plans offering loans) 22 See discussion of these observed correlations in the presented. Preliminary research analyzing 1.4 million >$60,000–$70,000 16 16 18 participants and plans entering and leaving on the butions because their account balances tend to be higher portion of their accounts in equity assets and EBRI/ICI Participant-Directed Retirement Plan Data accurately reflect actual 401(k) plan participation. PLANS WITH COMPANY STOCK AND GICs 60s All AND/OR OTHER STABLE VALUE FUNDS –6.9 of the 115 understate the number of plans offering loans (or association of the U.S. investment company industry. –5.6 Annual Meeting of the American Eco- –10.0 –21.0 50s Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 33.8 5.9 5.1 5.8 6.0 7.4 6.0 5.5 5.1 3.5 15.8 $40,000 20s 60s All 134,964 125,601 62.0 13.0 118,522 13.0 10.2 106,689 allocation by salary range and by investment option. (March 2001) finds that 89 percent of equity mutual ties, there is no evidence of a significant shift by a large declined, 401(k) plan participants do not appear to have 401(k) Account Balances Over $100,000, by Age and Tenure, 2002 more mixed pattern by age. Participants in their 20s had 81 percent to 99 percent, and 100 percent (Figure 4). than $10,000. For example, 89 percent of participants in book value) or similar instruments—are reported as Security Administration (EBSA)). Private Pension 12 by Plan Size, 2002 VanDerhei (September 2003). both could be tracked over multiple years. regarding EBRI membership, and/or contributions to EBRI-ERF should be directed to EBRI President Dallas Salisbury at securities—the sum of equity funds, company stock, and account balance of participants in their 20s rose about Account Balances Directed Retirement Plan Data Collection Project, EBRI 220 Age 60% Equity Balanced percent who held none. On the other hand, about 14 Bond Money Other Stable Through Year-End 2002 Companypercent ............................................... of the participants in these 11 a Appendix (Figures A13, A14, A15, A16, and A17). Figure Account Balances participants drawn from the 2000 EBRI/ICI database sists of funds that could not be identified. 1–100 >$70,000–$80,00016% 26 24 22 44.1 >$70,000–$80,000 8.2 8.7 9.7 16 17.814 7.9 16 Relationship of Age and Tenure to Account Collection Project for Year-End 2001.” overall average asset allocation. About half, or 5.3 larger. For example, the average account balance fell Minor investment options are not shown; therefore, row percentages will not add to 100 percent. 30s 0–2 ICI Perspective, 21.5 nomic Association.” Its membership includes 8,673 open-end investment participants eligible for loans) because some plans 14.5 older participants invest more in fixed-income assets. 64.8 12.0 3.9 The American Economic Review 12.8 8.3 44.6 . 60s 100% 43.0 6.5 5.1 5.4 5.2 6.1 4.7 4.1 3.6 2.5 13.9 0% 0–2 17,101 Outstanding Loans 20,781 23,802 24,735 fund shareholders in defined contribution plans made 16 Cerulli Associates, Inc. “Retirement Industry pants had more than 80 percent of their account bal- Participant asset allocation also varies with plan (percentage of participants with account balances over $100,000) b made significant changes to their asset allocation or 15 one category, “GICs and other stable value funds.” percentage of participants away from their year-end Plan Bulletin, Abstract of 1998, Form 5500 Annual The ratio of 401(k) account balance (at the current the above address, (202) 659-0670; e-mail: salisbury@ebri.org about 14 percent of their plan balances in company The participants within each of these groups are then their 20s with two or fewer years of tenure have account this analysis. Furthermore, account balances are net of b Data provided for each participant include partici- and ICI have collected data from some of their members Cohort 101–500 Funds Funds Funds Funds Value Funds 11 the equity portion of balanced funds. 38.9 12.8 Stock 8.1 Other 5.2 Unknown 23.0 Forty percent of Total 7.9 57 percent between the end of 1999 and the end of 2002 40s plans held more than 80 percent A15 is similar to Figure 10 except it covers all 15.5 of their account balances in company stock. suggests that the sheer number of investment options 59.5 12.6 15.9 93% 9.7 Salary information is available for a subset of participants in the EBRI/ICI database. See text endnote 8. >$80,000–$90,000 23 24 21 >$80,000–$90,000 14 13 15 Balances ................................................................... 11 Figure A25 92% Vol. 9, no. 2A, and EBRI Issue Brief >2–5 Appendix (Invest- 11.2 Figure A9 Vol. 93, no. 2 (May 2003). The difference in average account balance between may have offered, but had no participant take out, a companies (“mutual funds”), 588 closed-end 5.7 –1.8 15.5 All million, of the participants with accounts at year-end 10.0 percent in 2002 among participants in their 60s 32.1 4.7 By Age 4.5 5.3 5.7 Figure 11. Change in Average Account Balances Among 7.4 6.2 6.1 5.9 4.1 17.9 <100 participants >2–5 100–500 26,342501–1,000 29,301 1,001–5,000 By Tenure (years) 30,970 >5,000 30,419 no redemptions or redemption exchanges in 1998. Update.” The Cerulli Report. Boston, MA: Cerulli Relationship of Database Plans to the size (Figure A7, top panel), but much of the variation can There is a positive correlation between age and account 501–1,000 c 35.3 12.3 5.6 4.5 26.6 13.7 The “other” category is the residual for other employer) to salary alone is not an indicator of 1999 allocations. In addition, the percentage of partici- ances invested in equity funds, while 32 percent held no Reports made changes in their loan activity. Furthermore, while $30,000. Washington, DC: U.S. Department of Labor, stock, while participants in their 40s had 18 percent, and grouped according to the percentage of their account unpaid loan balances. In addition, the EBRI/ICI data- balances of less than $10,000, compared with 66 percent that serve as plan record keepers and administrators. 50s • Participants’ allocations to company stock remained in 51.3 12.5 21.2 11.9 Guaranteed investment contracts. 40% 27% million participants in the year-end 2002 EBRI/ICI pant date of birth, from which an age cohort is assigned; presented does not influence participants. On average, Plan Loans 90% Loan Balances as a Percentage of 401(k) Account Balances their account balances are invested in equity funds, for Participants With Loans, (Figure 11). The growth in assets among those in their >$90,000–$100,000 17% >5–10 years 60s 22 23 21 17% >$90,000–$100,000 13 12 13 Percentage of 401(k) Plan Participants Without Equity Fund Balances Most participants in 401(k) plans are in plans offering ment Company Institute and Employee Benefit Distribution of Plans, Par median age: 43 years >5–10 ticipants, and 2.9 the consistent subset at year-end 2002 ($57,668) and plan loan. It is likely that this omission is small as investment companies, 106 exchange-traded funds –0.5 –6.8 –4.5 20s 50.5% 11.0% 9.1% 6.9% 7.3% 13.6% median tenure: 7 years 0.7% 0.9% 100% Furthermore, Choi et al. (December 2001) find that 1999 had accounts in each consecutive year through who had an account since 1999. However, participants Changes in Account Balances 200 • The average account balance among participants who consistently held accounts since ................................... >5–10 54,346 12 401(k) Participants Present From Year-End 1999 55,935 55,662 51,883 1,001–5,000 Associates, Inc., (forthcoming) 2003. 35.0 9.2 84%5.9 4.6 27.3 15.7 60s 41.2 11.9 28.6 15.1 83% be explained by differences in the investment options investments such as real estate funds. The final preparedness for retirement. A complete analysis of balance among participants in the 2002 EBRI/ICI equity funds at all (Figure 9). The percentage of partici- Winter 2001–2002. Russell 3000 Index. Tacoma, WA: Frank Russell pants holding either none or 100 percent of their account The data include demographic information, annual broad equity market indexes fell 22 percent in 2002, participants in their 60s had 13 percent. balance invested in equity funds at year-end 2002, using base for any given year captures a snapshot of the of participants in their 20s with between five and 10 Asset Allocation 82% >2–5 by Salary, 2002 database rather than the consistent subset of 5.3 million participants have 10.4 distinct options but, on average, line with previous years. About half of the partici- Universe of Plans S&P 500 participant date of hire, from which a tenure range is 29 >$100,000 Editorial Board: Dallas L. Salisbury, publisher; Steve Blakely, managing editor; Alicia Willis, distribution. Any views express 21Who Have Equity Exposure, by Age and Tenure, 2002 19 17 16 percent in company stock, and 9 percent in balanced >$100,000 7 7ed in this publication 7 20s reflects the greater importance, in percentage terms, Research Institute, March 2003—Appendix). $120,000 >5,000 >10–20 –1.7 the entire year-end 2002 EBRI/ICI database borrowing privileges. the U.S. General Accounting Office (October 1997) (ETFs), and six sponsors of unit investment trusts. –3.7 31.6 8.0 –8.7 In the 2002 EBRI/ICI database, 5.2 2.5 –13.6 26.5 25.4 30s 51.4 16% 9.8 16% 8.6 5.2 7.4 16% 15.9 0.9 0.7 16% 100 401(k) participants rarely make changes after the initial Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 1999 declined 7.9 >10–20 percent 101,733 in 2002 and 10.0 Through Year-End 2002, by Age and Tenure 99,981 percent 96,294 since 1999. The change in a 87,904 ............. 12 year-end 2002. The relative returns of the different in their 60s also have a higher propensity to take '2003 12 Assets by Plan Size 80% category, “unknown,” consists of funds that could not preparedness for retirement would require 0–2 years Company. offered by plan sponsors. For example, the percentage of pants holding no equity funds tends to increase with database. contributions, plan balances, asset allocation, and loan Examination of the age composition of and those of the authors should not be ascribed to the officers, trustees, members, or other sponsors of the Employee Benefit R 50s esearch Institute, continuing contributions into 401(k) plans and diversi- participants in Figure 10. choose only 2.5 (Holden and VanDerhei, May 2001). In 16 Plan Loans balances in any particular investment option has ...................................................................... b 14 Holden, Sarah, and Jack VanDerhei. “401(k) Plan the same seven ranges. account balances at year-end and thus reflects the years of tenure (Figure A16). Older workers display a pants in the EBRI/ICI year-end 2002 database are in >30 $20,000 All 20% assigned; outstanding loan balance; funds in the 32.1 8.2 5.3 2.7 26.5 24.1 Russell 3000 75% funds (Figure 2). of contributions than other factors because these partici- Note: Row percentages may not add to 100 percent because of rounding. ________. PLANS WITH GICs Private Pension Plan Bulletin, Abstract of AND/OR OTHER STABLE VALUE FUNDS >20–30 –6.0 Average and Median Account Balances ($39,885) is explained, in part, by the different tenure finds that more than 95 Its mutual fund members manage assets of –6.3 –10.5 percent –21.1 of 401(k) plans that 60s point of enrollment. An analysis of changes in asset 40s 44.4 9.7 9.7 5.7 84 percent of participants are in plans offering loans. 11.4 17.6 1.0 0.5 100 Employee Benefit >20–30 146,685 137,928 129,254 115,687 27% participant’s account balance is a result of contributions, investment returns, with- Plans investment categories, ongoing contributions into the withdrawals. 60s 23 the EBRI Education and Research Fund, or their staffs. Nothing herein is to be construed as an attempt to aid or hinder the ado 15% 15% 15% 0–2 ption of any be identified. Some administrators supplying data ________. “Can 401(k) Accumulations Generate estimating projected balances at retirement by also balances. The 2002 EBRI/ICI database appears to be a representa- 18% Source: Tabulations from the EBRI/ICI Participant-Directed Source: Tabulations from the EBRI/ICI Participant-Directed Figure 12. Average Account Balances Among 401(k) addition, the preliminary analysis found that 401(k) plan assets invested in company stock rises with plan account balances finds that 53 percent of participants 180 (6%) 42% changed little, except for equity funds and bond funds age. fied asset allocation generally muted the impact of the 20s For example, about 37 percent of participants in 20s Asset Allocation, Account Balances, and Loan Activ- entrance of new plans and new participants and the exit similar pattern. For example, 69 percent of participants 54.4 Within this system of cross-classification, a 12.1 8.1 5.3 17.7 27 Asset Allocation by Investment Options plans that offer company stock as an investment Research Institute Characteristics of Participants With 15% participant’s investment portfolios; and asset values 1995, Form 5500 Annual Reports. >30 Washington, DC: –10.0 composition of the participants. While 38 S&P 500 Index approximately $6.8 trillion, accounting for offer loans had at least one plan participant with an –7.1 Investment performance likely explains the bulk of . New York, NY: Standard & Poor’s. –11.0 –25.6 percent of pants’ account balances tend to be small compared with allocation among EBRI/ICI 401(k) plan participants to 50s 18% 37.3 9.1 11.5 6.4 (percent of plans) Percentage With Company 17.5 The analysis of “Relationship Between Account 16.6 1.1 0.4 100 The 2002 EBRI/ICI database contains 46,310 401(k) 70% >30 209,900 However, as has been the case for the seven years that 188,880 175,542 156,180 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. pending legislation, regulation, or interpretative rule, or as legal, accounting, actuarial, or other such professional advice. (7%) Retirement Plan Data Collection Project. 40s drawals, borrowing, and loan repayments. Retirement Plan Data Collection Project. (15%) various investment categories, and rebalancing of Significant Income for Future Retirees?” were unable to provide complete asset allocation considering retirement income from Social Security, ICI Perspec- tive sample of the estimated universe of 401(k) plans. ICI 30s 60s 66% participants are not naive—that is, when faced with “n” 57.0 11.8 7.8 4.1 17.4 50s 4 16% (11%) Participants Present From Year-End 1999 Through 16% size. A portion of this trend occurs because few small Education and with account balances of less than $10,000 are in their their 20s had no equity fund investments, compared with 100% The EBRI/ICI database is constructed from administra- ity in 2002.” ICI Perspective, Vol. 9, no. 5, and EBRI (Figure 5). The share of participants holding all of their poor market performance on participants’ account 30% percentage along the diagonal shows the share of partici- in their 60s with two or fewer years of tenure have of participants who retire or change jobs. When analyz- >20–30 a 40% Stock and/or Balanced Funds option. More than half of the participants in these U.S. Department of Labor, Spring 1999. The 2002 EBRI/ICI database contains 15.5 million Outstanding Loans .................................................. 14 attributed to those funds. An account balance for each the participants in the year-end 2002 EBRI/ICI Balances and Salary” that typically appears in the approximately 95 outstanding loan. percent of total industry assets, Availability and Use of Plan Loans by equity funds between 1996 and 1998 is presented in 60s 30.3 8.0 13.7 7.3 26.7 the changes in 401(k) plan participants’ asset allocations 12.7 1.0 0.4 100 typical contributions. Minor investment options are not shown; therefore, row percentages will not add to 100 percent. $10,000 plans with $618.6 billion of assets and 15,509,185 16% the EBRI/ICI databases have tracked 401(k) plan 40s 60% 50.3 11.9 8.0 4.3 23.7 tive, Plan Loans detail on certain pooled asset classes for one or more Research Fund defined benefit plans, IRAs, and other defined account balances among the investment categories by Vol. 8, no. 3, and EBRI Issue Brief no. 251 Utkus, Stephen P. options they do not divide their assets among all “n.” Participant Report Card for 2002: a The mix of investment options offered by a plan sponsor (June 2003) estimates 401(k) plans held $1,540 billion in a • The average account balance tended to increase in 2002 for young participants and 50s Year-End 2002, by Age and Tenure ............................ 13 b EBRI Issue Brief is registered in the U.S. Patent and Trademark Office. ISSN: 0887–137X 0887–137X/90 $ .50+.50 Issue Brief no. 261 (Investment Company Institute (12%) plans offer company stock as an investment option. For 20s or 30s (Figure A13). Similarly, of those with account 43 percent of participants in their 60s. However, in 60% 14% tive records of 401(k) plans. The database contains only Asset Allocation and Investment Options active 401(k) plan participants in 46,310 plans with balances. Among participants with accounts since year- offer company stock, but no stable value products, as an Holden, VanDerhei, and Quick (January/February accounts in equity funds decreased slightly, while the Guaranteed investment contracts. All 13 All –0.9 401(k) participants in the year-end 2002 EBRI/ICI database have five or fewer years of tenure and EBRI/ICI year-end updates has been included in the pants who remain within the same equity fund asset and represent more than 90 million individual account balances of less than $10,000. In contrast, only ing account balances, it is important to recognize the –1.3 plans held 20 percent or less of their account balances –7.9 –10.0 All 40.3 9.2 10.9 6.2 participant is the sum of the participant’s assets in all 15.8 16.1 1.0 0.5 100 160 50s All 30s All 64,074 over time. Much of the movement in the largest compo- 63,470 42.0 11.3 62,646 8.2 4.5 57,668 32.5 40s Average Loan Balances In contrast, the average account balance tended to .............................................. 15 All rights reserved participants (Figure 1). Most of the plans in the participants’ loan activity, few participants had loans 14% 54% Plan Size of their clients. Only plans in which at least (Investment Company Institute and Employee Benefit contribution plans, possibly from previous U.S. General Accounting Office. “401(k) Pension AGE COHORT The Impact of the Bear Market on Retirement Savings Indeed, less than 1 percent of participants followed a “1/ participants influence asset allocation of account bal- significantly affects the asset allocation of the partici- assets at year-end 2002 and the EBRI/ICI database those with lower tenure. These participants tend to have lower balances and contribu- and Employee Benefit Research Institute, September 40s 8 example, less than 1 percent of participants in small balances greater than $100,000, more than half are in $618.6 billion in assets. The EBRI/ICI data are unique the account balances held in the 401(k) plans at partici- 51% investment option had dramatically lower allocations to 2000). share completely eschewing bond funds edged down. aggregate, about 52 percent of participants with no end 1999, the average account balance fell 7.9 percent in 60s database are in plans that offer company stock as an 18 Appendix (Figures A18, A19, and A20). Results for year- allocation grouping in 2002 that they occupied in 1999. shareholders. combined effects of actions of participants present in about 21 percent of those in their 60s with more than 20 percent 33.0 have more than 20 years of tenure (Figure 10.3 8.1 5.3 41.9 Figure 13. Percentage of Eligible 401(k) Participants in company stock, including 35 percent who held none. 12% funds. Plan balances are constructed as the sum of all • Despite the continuing volatility in financial markets $80,000 80% nent, equity funds, tends to reflect overall equity market fall for older participants with longer tenures. For 50s 20s 49.5% 7 database are small, measured by the number of plan outstanding. At year-end 2002, only 17 percent of those 90 Research Institute, November 2002). employment. For references to such research, see Plans: Loan Provisions Enhance Participation But percent $0 of all plan assets could be identified were 39% Plans. n” asset allocation strategy. Valley Forge, PA: The Vanguard Group, Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 12%50% Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. The investment options that participants are offered by ances. Previous research has indicated that most 401(k) Average Loan Balances Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Bibliography.................................................................... 16 2003). pants in a plan. Figure 7 divides all of the plans in the Cerulli 30s because they cover a wide variety of plan administrators represents about 40 percent of 401(k) plan assets. The tions are large relative to these balances. For example, the average account balance 20s 30s end 2002 are essentially similar to earlier years’ results. plans are offered company stock as an investment option, their 50s or 60s. The positive correlation between age equity fund balances had exposure to the stock market pants’ current employers. Retirement savings held in A3), at year-end 2002, only 17 percent of the 2002 and declined a total of 10.0 percent between year- a a 44% 30s The figures above the diagonal represent 401(k) plan years of tenure have account balances of less than consecutive years in the database as compared with the 52.0 18 equity funds and balanced funds than the base group. a 14 investment option. Among these participants, 35 percent With Loans, by Age, 2002 4 On the other hand, about 14 percent of the partici- ............................................ 14 Fifty-one percent of the plans for which loan data are (22%) 1996 1997 1998 1999 participant balances in the plan. Plan size is estimated 2000 10% 2001 2002 and generally weak economic conditions, 401(k) plan Guaranteed investment contracts. prices, which generally rose from 1996 through 1999 example, the average account balance of participants in The width of the ranges was selected based on Sample of 5.3 million participants with account balances at the end of each year from 1999 through 2002. included in the final EBRI/ICI databases. Holden and VanDerhei (January/February 2001). In May Affect Income Security for Some.” participants or by total plan assets. Sample of 5.3 million participants with account balances at the end of each year from 1999 through 2002. Forty-three Letter Report, eligible for loans had loans outstanding (Figure 13). Vanguard Center for Retirement Research, February In this effort, EBRI and ICI have collected data PLANS WITH COMPANY STOCK 140 10 a plan sponsor significantly affect how participants participants do not make changes to their asset alloca- and record keepers and, therefore, a wide range of plan 10% 24 year-end 2002 EBRI/ICI database into four combinations distribution of assets, participants, and plans in the b 20% b rose 4.3 percent 40s in 2002 for participants in their 20s who had an account since 1999. GICs are insurance company products that guarantee 52.915 ________. “Appendix: EBRI/ICI 401(k) Accumulation b 20s consistent subset of participants have five or fewer while 71 percent of participants in plans with more than and account balance is expected because younger work- plans at previous employers or rolled over into individual 28 through company stock or balanced funds. end 1999 and year-end 2002. Row percentages may not add to 100 percent because of rounding. Age and tenure cohorts are based on participant age and tenure at year-end 1999. Finally, in those plans that offer both company stock and Asset Allocation by Age at Y Age and tenure cohorts are based on participant age and tenure at year-end 1999. 40% ear-End 2002 held none and 58 percent held 20 percent or less of their ________. “Can 401(k) Accumulations Generate participants who are in a higher equity fund allocation $10,000. effects of entry and exit of plans and participants from pants in these plans held more than 80 percent of available in the 2002 EBRI/ICI database offer a plan Appendix 20s......................................................................... 32% 17 as the sum of active participants in the plan and, as 44.7 6.9 10.0EBRI/ICI 9.2 20s 28.4 approximations of the impact of aggregate asset returns Among participants with outstanding loans at the end of participants’ loan activity in 2002 was essentially For statistics indicating the higher propensity of before moving down through 2002 (Figure 3). However, their 60s with more than 30 years of tenure fell addition, Holden and VanDerhei (November 2002) 10/01/97, GAO-HEHS-98-5. Washington, DC: U.S. Could we send a friend or colleague a complimentary 17 2003. from some of their members that serve as plan record Did you read this as a pass-along? Stay ahead of employee benefit percent of the plans in the database have 25 or fewer Figure 14. Percentage of Eligible 401(k) Participants As shown in previous years, loan activity varies 20 50s 54.0 8 sizes offering a variety of investment alternatives. This 60% 35% allocate their 401(k) assets. Figure A4 presents the tions during any given year, in line with having a Employee Benefit Research Institute of investment offerings, a specific rate of return on the invested capital over the starting with a base group Projection Model.” On average, asset allocation of participants missing EBRI/ICI database for 2002 is similar to that reported for 8% ICI Perspective, Vol. 8, no. 3A years of tenure and 26 percent have more than 20 18 5,000 participants are offered company stock as an ers are likely to have lower incomes and to have had less 30s retirement accounts (IRAs) are not included in this 45.3 6.3 9.8 7.3 30.3 stable value products, company stock appears to have • The average account balance for older and longer tenure participants tended to decline 31 account balances in company stock (Figure 8). On the Significant Income for Future Retirees?” grouping in 2002 compared with 1999. Likewise, partici- the database. In a given age group, longer tenure means a higher ICI Perspec- on hypothetical portfolios of various asset compositions, withdrawals among participants in their 60s, see their account balances in company stock. loan provision to participants (Figure A21). The loan such, does not necessarily represent the total number of issues with your own subscription to >10–20 EBRI Issue Briefs for only $49/ 2002, the average unpaid balance was $6,659. develops a model that projects the proportion of an General Accounting Office, October 1997. unchanged from earlier years. Only 17 percent of 10% copy of EBRI Issue Brief? 60s Again, keepers and administrators. The data include at the margin, the EBRI/ICI databases are able to 50.5 25.6 percent between year-end 1999 and year-end 2002 With Loans From the Plan, by Age, Tenure, or participants, and 33 percent have 26 to 100 participants. 30s with age, tenure, salary, account balance, and plan size. update extends previous findings from the project for life of the contract. distribution of plans, participants, and assets by four Endnotes long-term investment horizon. ......................................................................... 30% 17 salary information is similar to the asset allocation (Investment Company Institute, November 2002— As also shown in previous years, the EBRI/ICI database 40s years of tenure. consisting of plans that do not offer company stock, 40.1 6.4 12.7 8.6 31.0 the universe of plans estimated by Cerulli Associates 2121 K Street, NW, Suite 600, Washington, DC 20037-1896 120 20%6% investment option. Thus, to analyze the potential effect time to accumulate a balance with their current em- Using administra- analysis. Furthermore, account balances are net of tive, Vol. 8, no. 3, and EBRI Issue Brief no. 251 using major market averages for each asset class. in 2002, as investment returns are more significant than contributions because their All Median Holden and VanDerhei (November 2002—Appendix). pants below the diagonal are in a lower equity fund percentage of people with account balances greater than year electronically e-mailed to you or $99/year printed and mailed. (22%) 51.7 displaced equity and balanced fund holdings, and GICs other hand, about 14 percent had more than 80 percent feature is more commonly associated with large plans individual’s pre-retirement income that might be employees at the sponsoring firm. demographic information, annual contributions, plan similar to other years of analysis, loan balances as a eligible participants had outstanding loans at the end (28%) identify a small number of 401(k) plan participants who 2–5 (Figure 11). The decline in assets reflects the greater Account Size, 1996, 1999, and 2002 ............................ 15 1996 through 2001. For year-end 2001 results, see In contrast, only 4 percent of the plans have more than 50s Of those participants in plans offering loans, the highest 35.3 6.4 17.236% 10.2 21 29.8 5 $24,000 combinations of investment offerings. The first category for those with such information, in aggregate. Appendix). In comparing the asset allocations of the 5.3 million 11 for year-end 2002 finds that participant asset allocation GICs, or other stable value funds. Participants in these (Figure A1). 12 40% voice (202) 659-0670 (Investment Company Institute and Employee For more information about subscriptions, visit our Web site at of plan size, the remaining panels of Figure A7 group ployer. In addition, they are less likely to have rollovers 4% tive records, the unpaid loan balances. In addition, the EBRI/ICI database Other stable value funds include synthetic GICs, account balances tend to be larger. For example, the average account balance fell (71.0 percent) of participants fall into the bold-typed 19 a participant’s account balance represents reflects the and other stable value funds appear to have displaced the end of 1999 had accounts at the end of each year replaced by 401(k) plan accumulations at retirement, of their account balances invested in company stock. holding equity funds in 2002 when they held none in 29 Approximately 1-1/2 10.0 percent, from $64,074 at year-end 1999 to $57,668 allocation grouping in 2002 compared with 1999. Be- Relationship of Age and T balances, asset allocation, and loan balances. $100,000. For example, about 4 percent of participants percent of the participants in enure to(23%) (measured by the number of participants in the plan). $40,000 60s Investment options are grouped into eight catego- 31.8 5.3 25.1 11.2 25.7 Holden and VanDerhei (March 2003). Results for earlier percentage of account balances (net of the unpaid loan of 2002. In addition, for those with outstanding loans 20% $15,246 appear to have actively changed their asset allocations. importance of investment returns because their account Participants in their 20s hold approximately 2 percent See “Availability and Use of Plan Loans by Plan Size” 1,000 participants. However, participants and assets are Send an issue to 19 percentages of participants with outstanding loan Changes in Account Balances TENURE (years) However, average allocations to balanced funds is the base group that consists of plans that do not offer participants with account balances at year-end 1999— Sarah Holden is senior economist, Research Department at the Investment Company Institute (ICI), and Jack 10% Figure 15. Loan Balances as a Percentage of 401(k) varies considerably with age (Figure 6). Account Younger plans—which generally offer equity funds, bond funds, www.ebri.org or complete the form below and return it to EBRI. Figures Benefit Research Institute, November 2002). which consist of a portfolio of fixed-income securities 9 $13,493 plans by investment option and plan size. from a previous job’s plan in their current plan accounts. $11,873 $13,038 for any given year captures a snapshot of the account $12,810 $12,578 sum of three factors over time: contributions; investment other fixed-income investments. These effects tend to ________. “The Impact of Employer-Selected Invest- from 1999 through 2002. under several different projected scenarios. 2% $11,600 10.0 percent EBRI/ICI database in 2002 among participants in their 60s who had an account since 1999. fax (202) 775-6312 the database had a missing birth date; were younger at year-end 2002 (Figure 12). From year-end 1999 to cause equity returns in aggregate were negative over in their 60s with 10 or fewer years of tenure have numbers (Figure 4). 1999. Conversely, the asset allocation to equity funds Ninety-two percent of plans with more than 10,000 years are available in earlier 100 EBRI Issue Briefs 0–2 , which ries. 5 Equity funds consist of pooled investments 45.4 of the total assets in the 2002 EBRI/ICI database; balance) for participants with loans was 16 percent at at the end of 2002, the level of the unpaid balance in the Appendix for explanation of EBRI/ICI data on The 2002 EBRI/ICI database represents a snapshot balances tend to be large relative to their annual contri- Account Balances concentrated in large plans. For example, 77 percent of $12,000 b 25% balances were among participants in their 30s, 40s, or The latest U.S. Department of Labor (Winter 2001– among participants for whom salary information is company stock, guaranteed investment contracts (GICs), near the peak of the stock market—and year-end 2002, VanDerhei, Temple University, is research director of the Employee Benefit Research Institute (EBRI) Fellows PLANS WITH COMPANY STOCK AND GICs AND/OR OTHER STABLE VALUE FUNDS Account Balances for Participants With Loans, by participants tend to favor equity funds, while older money funds, and balanced funds as investment op- “wrapped” with a guarantee (typically by an insurance Organization Distribution of Plans, Par 10% ticipants, and 22 ment Options on 401(k) Plan Participants’ Asset There is a positive correlation between account However, participants in their 60s also have a higher propensity to take withdrawals. reports the >2–5 balances at year-end and thus reflects the entrance of than 20 years old; or were older than 69 years old. 53.6 This section examines the change in account balances of this time period, many of the participants below the returns; and withdrawals, borrowing, and loan repay- occur across all age groups of participants. 17 can be obtained on EBRI's Web site at www.ebri.org. However, some participant action can be discerned The average 401(k) account balance of this consis- EBRI Online: www.ebri.org changed for 6.4 percent of participants from holding Distribution of Par plan loans (Figure A21). In addition, for the analysis of year-end 2002, the S&P 500 total return index fell about account balances in excess of $100,000 (Figure A17). ticipants’ Equity Fund participants in their 30s hold 13 participants include a loan provision, compared with 0% percent; participants in ________. “Appendix: EBRI/ICI 401(k) Accumulation primarily investing in stocks. These funds include equity year-end 2002 (Figure 15). In addition, the same as in represented 16 percent of the account balance, net of 20% 21% of the asset allocation of a wide cross-section of 401(k) butions. In addition, participants in their 60s have a 2002) estimate of the universe of 401(k)- type plans is available in both groups of plans offering company participants are in plans with more than 1,000 partici- The tendency of the ratio of account balances to 20s 50s (Figures 13 and 14). In addition, participants with Name 40.8 11.2 5.5 3.2 11.9 26.0 Figure 1. EBRI/ICI Database: 401(k) Plan Charac- Age, Tenure, or Account Size, 1996, 1999, company or a bank) to provide benefit payments or other stable value funds. Almost 29 percent of partici- this analysis finds that few participants appear to have Program. Special thanks to Luis Alonso, research associate at EBRI, who managed the database. In addition, participants are more likely to invest in fixed-income >5–10 tions—had the highest allocation to equity funds. 54.5 Distribution of Equity Fund Allocations and Allocations: Preliminary Findings.” Working Paper They were not included in this analysis. 1% balance and tenure among participants in the 2002 Poterba (May 2003) and Utkus (February 2003) are Balances new plans and new participants and the exit of partici- In each year of the EBRI/ICI database and among the their 40s hold 34 percent; participants in their 50s hold 28 account balance a group of participants who held accounts at the end of loan activity by plan size see the Appendix (Figures A22 by studying the cases of a change from either a zero ments. The magnitude of each of these factors relative to tent group of participants edged down about 1 percent Assets by Plan Size 30s equity funds in 1999 to holding none in 2002. On net, the Projection Model.” 38 percent. However, the change in a participant diagonal may have had their equity allocations decreased However, about 32 percent of participants in their 60s 42.3 9.2 ICI Perspective, 5.1 2.3 Vol. 8, no. 3A 12.4 27.4 ’s 35 percent of plans with 10 or fewer participants. Address mutual funds, bank collective trusts, life insurance other years, there is variation around this average with the unpaid loan balance, little changed from recent $0 • Despite the continuing volatility in financial markets and generally weak economic for plan-year 1998. For 1998, it reported 300,593 plan participants’ accounts at year-end 2002. Thus, the stock as an investment option are higher than for higher propensity to make withdrawals. salary to peak at higher salary levels and then fall off Allocations by Age pants, and these same plans account for 85 percent of all 0% >10–20 five or fewer years of tenure or with more than 30 years 53.9 teristics, by Number of Plan Participants, 2002 80 .......... 5 according to the plan at book value. and 2002 pants in the 2002 EBRI/ICI database are in these Appendix ........................................................................ 6% 15 made or experienced extreme changes in their asset thanks to Stefan Kimball at ICI, who assisted in preparing the graphics. This report is being published simulta- 0% securities such as bond funds, GICs, and other stable Participants in plans that offer GICs and/or other stable prepared for The Center for Pension and Retirement Organization other recent studies of 401(k) plan participants; 40s 40s 36.2 9.0 5.3 2.5 18.7 27.1 37 Participant Exposure to Equities EBRI/ICI database. The participant’s tenure with the percent; and participants in their 60s hold the 1996 1997 1998 1999 pants who retire or change jobs. At year-end 2002, the 13 and A23). participants with account balances at the end of each 2000 2001 2002 the size of the account balance influences the change in from 1999 to 2000, declined another 1.3 percent in 2001, held in the 401(k) each year from 1999 through 2002. Analyzing a consis- (Investment Company Institute, November 2002— account balance is the sum of three factors: new contri- due to market returns rather than as a result of any with between 20 and 30 years of tenure with their percent (none) or 100 percent allocation to any other Distribution of Participants’ Company percentage of participants with no allocation to equity Finally, participants in smaller plans that offer loans >20–30 separate accounts, and other pooled investments. Approximately 9 401(k)-type plans covering 37 million active 57.2 percent of the participants in the participant records without salary information. In likely reflects the influence of two competing forces. age (lower the older the participant), tenure (lower the years. Dec-96 Jun-97 Dec-97 conditions, 401(k) plan participants’ loan activity in 2002 was essentially unchanged Jun-98 Dec-98 Jun-99 Dec-99 aggregate average asset allocation presented reflects the Jun-00 Dec-00 Jun-01 Dec-01 Jun-02 Dec-02 5% plan assets. of tenure were less likely to use the loan provision than 0% City/State/ZIP 50s 0% 12 plans—which generally offer equity funds, bond funds, 29.9 8.1 5.6 2.8 28.3 24.2 allocations. Detailed transaction information is not neously by the Investment Company Institute as an ICI 0% Perspective. Any views expressed in this report are those Research (CPRR) Current Pension Policy Issues value funds, or money funds. On average, participants in references for other earlier studies are included in the The 2002 EBRI/ICI database contains 46,310 401(k) (32%) value funds as an investment option allocated a smaller remaining 14 Figure 2. 401(k) Plan Average Asset Allocation, percent of the total assets. For the Some administrators supplying data were unable to >30 56.2 employer serves as a proxy for length of participation in plan at the average account balance was $39,885 and the median Among individual participants, the allocation of account Appendix). year from 1999 through 2002, there tends to be a positive Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. $0 30 tent group of participants removes the effect of action on their part. The bold-type numbers cover the >5–10 account balance experienced by the participant. allocation. For example, at year-end 1999, 25.9 percent of and then fell 7.9 percent in 2002 (Figure 11). All told, 1–100 <$10,000 101–250 251–500 501–1,000 >$40,000–$50,000 1,001–2,500 funds edged up only slightly between 1999 and 2002. database had a missing tenure range and were not butions by the participant and/or the employer; total participants with $1,541 billion in assets. current employer have account balances greater than 2,501–5,000 5,001–10,000 >$100,000 >10,000 All Plans addition, in plans offering company stock and GICs tend to be less likely to have taken out a loan than First, empirical research (see Holden and VanDerhei, from earlier years. Only 17 percent Similarly, bond funds are any pooled account primarily Address of eligible participants had outstanding loans at the higher the tenure of the participant), and account >0–2 >2–5 5–10 See the Appendix (Figures A24 and A25) for loan entrance and exit of plans and participants. When trying 10–20 20–30 >30 Stock Allocations by Age 60s $20,000–$30,000 >$40,000–$50,000 >$60,000–$70,000 23.9 >$80,000–$90,000 6.5 4.8 3.2 >$100,000 42.9 17.8 other participants (Figure 14). Furthermore, only On average, 40 percent of participant account balances aSources: Bloomberg, Frank Russell Company, and Standard & Poor’s. <100 participants 100–500 501–1,000 money funds, and balanced funds as investment options. 1,001–5,000 >5,000 Conference, at Miami University, Oxford, OH, June available; thus, this report infers participant asset previous EBRI/ICI research updates. of the authors and should not be ascribed to the officers, trustees, or other sponsors of EBRI, EBRI-ERF, or their All 51.7 distribution of participants by age or tenure see the • their 20s had 51 percent of their account balances Loan activity varies with age, tenure, salary, and plans with $618.6 billion of assets and 15,509,185 13 25 This document is available electronically in pdf share of their assets to bond and money market funds provide complete asset allocation detail on certain 9 1996–2002 Account balances are participant account balances held in the 401(k) plans at the participants’ current employers and are net ....................................................................... 6 of plan loans. 0–2 >2–5 >5–10 >10–20 >20–30 (21%)>30 the 401(k) plan. Your Name Indeed, 60 percent of participants Retirement savings account balance was $12,578 (Figure A11). balances to equity funds varies widely around the correlation between age and account balance and like- Because of participant’s current employer. participants and plans entering and leaving the database included in this analysis. In addition, for one data participants held no equity funds (Figure 4). At year-end and/or other stable value funds, the allocation to October 2001) for a complete discussion of EBRI/ICI from year-end 1999 (near the peak of the stock market) a investment return on account balances, which depends allocation ranges that would likely result from the equity $100,000. The percentage increases to 39 percent for Similarly, there was a small decline in the percent- participants in larger plans (Figure A22). Loan ratios end of 2002. In addition, for those with outstanding loans at the end of 2002, the level invested in bonds, and balanced funds are pooled ac- activity by salary. balance (lower the higher the account balance). 6 to discern participant behavior over time, it is important Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. ________. “Contribution Behavior of 401(k) Plan The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. The Russell 300 Number of Participants in Plan 11 percent of participants with account balances of less 0 are allocated to equity funds in the year-end 2002 EBRI/ Retirement savings held in plans at previous employers or rolled over into IRAs are not included. In some analyses, the subset is restricted to Appendix (Figure A3). 8–9, 2001: Draft, May 2001. City/State/ZIP pooled asset classes for one or more of their clients. Another 24 percent of participants are in plans that offer allocation activity using the year-end snapshots of their staffs. Neither EBRI nor EBRI-ERF lobbies or takes positions on specific policy proposals. EBRI invites comment Years of Tenure 5 invested in equity funds, compared with about account balance. participants (Figure A2). Because most of the plans have Number of Participants in Plan Salary Range Salary Range format. To order online, visit www.ebri.org/publica- than the base group, and had lower allocations to equity Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. The Appendix is available through EBRI's Web site at Participants’ allocations to company stock remained in with account balances of less than $10,000 have five or For example, the S&P 500 was down 22.1 a percent inYears of Tenure the changing composition of the universe over time, it is average of 40 percent for all participants in the 2002 provider, “years of participation” are used for the wise there is a positive correlation between tenure and company stock tends to be higher among participants findings and others’ research on the relationship to year-end 2002 (the third year of the bear market), the held in plans at previous employers or rolled over into b measures the performance of the 3,000 largest U.S. companies based on total market capitalization. (and/or 401(k) universe) on the overall average. About on the performance of financial markets and on the market returns experienced during that time period in participants in their 60s with more than 30 years of Figure 3. Domestic Stock Market Indexes, December 2002, 21.5 percent of participants continued to hold no age of participants allocating 100 percent of their vary only slightly when participants are grouped based of the unpaid balance represented 16 counts invested in both stocks and bonds. Company stock percent of the account balance, net of the unpaid 30 Sample of participants changes over time. Minor investment options are not shown; therefore, row percentages will not add to 100 percent. 31 Participants.” to narrow the analysis to a consistent group of partici- ICI Perspective, Vol. 7, no. 4, and EBRI a than $10,000 had loans outstanding. participants earning $20,000 or more. The median ICI database (Figure A7, top panel). However, individual a The median loan balance outstanding is $3,700 at Only plans in which at least 90 percent of all plan b Percentages may not add to 100 percent because of rounding. GICs and/or other stable value funds as an investment accounts. on this research. 30 percent of account balances for participants in their a small number of participants, the asset size for many b Percentages may not add to 100 percent because of rounding. tions or call EBRI Publications at (202) 659-0670. funds as well. Alternatively, participants in plans that 26, 27 All indexes are set to 100 in December 1996. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 18 2002, after falling 11.9 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Sources: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project, Cerulli Associates. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. percent in 2001 and falling tenure variable. line with previous years. About half (or 7.4 million) of the Holden, Sarah, Jack VanDerhei, and Carol Quick. fewer years of tenure, while 90 percent of participants between contribution rates and salary) suggests that individual retirement accounts (IRAs) are not included in Guaranteed investment contracts. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. not correct to construe the change in average or median www.ebri.org EBRI/ICI database. Indeed, about 22 percent of partici- account balance (Figure 10). The accumulation that 1996–December 2002 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. ..................................................... 6 half, or 5.3 million, of the participants with accounts at the absence of any participant action. The bulk equity funds, but 4.4 percent of participants were average account balance among these participants fell accounts to equity funds (Figure 4). At year-end 1999, allocation of assets in the individual’s account; and tenure. Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 loan balance. pants present in consecutive years in the database. salary in that subsample is about $45,112 in 2002. year-end 2002. Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 or Fax to: (202) 775-6312 or Fax to: (202) 775-6312 EBRI Issue Brief Number 261 • September 2003 • © 2003 EBRI 2 16 10 4 6 14 16 18 8 18 6 4 12 2 10 8 12 14 20September 2003 • EBRI Issue Brief September 2003 • EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief September 2003 • EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief September 2003 • EBRI Issue Brief September 2003 • EBRI Issue Brief September 2003 • EBRI Issue Brief September 2003 • EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief September 2003 • EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief Appendix to September 2003 EBRI Issue Brief EBRI Issue Brief • September 2003 EBRI Issue Brief • September 2003 EBRI Issue Brief • September 2003 EBRI Issue Brief • September 2003 EBRI Issue Brief • September 2003 EBRI Issue Brief • September 2003 EBRI Issue Brief • September 2003 EBRI Issue Brief • September 200319 15 15 13 19 21 11 17 17 13 11 7 5 9 9 5 3 1 7 September 2003 • EBRI Issue Brief EBRI Issue Brief • September 2003 3 <$10,000 $10,000–$20,000 >$20,000–$30,000 >$30,000–$40,000 >$40,000–$50,000 >$50,000–$60,000 >$60,000–$70,000 >$70,000–$80,000 >$80,000–$90,000 >$90,000–$100,000 >$100,000 $40,000 or less >$40,000–$60,000 >$60,000–$80,000 >$80,000–$100,000 >$100,000 All $40,000 or less >$40,000–$60,000 >$60,000–$80,000 >$80,000–$100,000 >$100,000 All 1–10 11–25 26–50 51–100 101–250 251–500 501–1,000 1,001–2,500 2,501–5,000 5,001–10,000 >10,000 All Plans 1–10 11–25 26–50 51–100 101–250 251–500 501–1,000 1,001–2,500 2,501–5,000 5,001–10,000 >10,000 All Plans Percentage in 1999 Issue Brief Issue Brief Issue Brief

Volume 261

Pages 41

EBRI Issue Brief

Sarah Holden

Jack VanDerhei

Retirement