Figure 11 Figure 9 Percentage of Eligible 401(k) Participants With Loans, by Age, 2003 Change in Average Account Balances Among 401(k) Participants Present E B R I Figure 7 a b Figure 6, Asset Allocation Distribution 22% of Particip ant Account Balance to Co mp any Stock in 401(k) From Year-End 1999 Through Year-End 2003, by Age and Tenure 9 Mu Ass nn eell, Cah t Alloca Benartzi (February ill, an tion Distribu d Jivan (Sep tion of 40 2004) st tember 20 ructu 1(k 03) an r)e a d Participan d Fr efau ied lt o bep rg (t tion percent Acc an t d hount W at in ) ebb creases p Bal (Sep ance to Equit tem articip ber 20 an 03) ex ts’ con y Funds, b plto ribu re ho tion w th s y Age, 200 oe ver time to 3 Plans With Com pany Stock, by Age, 2003 ......................................................................................19 20% b b 27 EBRI Issue Brief 19% Age Cohort Tenure (Years) 1999–2000 2000–2001 2001–2002 2002–2003 1999–2003 E MP LO YE E Issue Brief Figure 1 shi At th ft in pe e end nsicoi o of n c n 2ci ove 003 dera , app wi ge t thr o ox pay wimatel a i rd n de creases. y 6 fine 3d c .5 p M oe int trcen cri hel bu t lt and o io fn bpl a U lan an tkus c s m ed ( m a 2y 0 be a fact u 0tu 3)al fu use t nd assets were i h or e l af ess fect onis ng of t be he n t v havi ie m sted in ing o oral f fi equ rn ea tnce t iities (see rement o fr . ame a Cerulli Associates. “Retirement Markets 2003.” Iwry , J. Mark Fidelit Utkus, Stephen P., and Jean A. Young. participants in their 60s wi . “Prom y Inves oting 401(k) Securi tments. Building Futures, Volume IV: Plan Op th m ty.” (pe ore than 30 Tax Polic rcent of partici Cerulli Quantitative Update. Lessons Fro y y Issues and Options ears of tenure was still down 15.5 pe pant m s) Behavioral Finance an tions and Participant Choices in . No. Boston, MA: Cerulli 7. Washington, DC: d the Autopil rcent between ot 401(k) year- Sarah Holden is senior econom Asset Allocation, by Age Account Balances ist, Research Department, at the Investment Company Institute (ICI), 18% Figure 7, Asset Allocation Distribution 20s All 26.4% of 401( 19.5%k) Participant Account Balance to Equit 4.7% 51.0% 138.7% y Funds, by Account Balan The EBRI/ICI Database ces Figure 3 Chan and Inve stmenStevens t Co discussi mpan (Decem y In on of stitu p ber 2003) e lan de te, Qua sig rn terly Sup c xam hoiin ces t e the influe plh emen at coul tal Data d nce bet of fina te )r e . ducat ncial fac e and tors improve on the t timing of he investin retirem g expee ri nence t. of imperfect 7 EBRI/ICI Dat abase: 401(k) Plan Charact eristics, by Number of Plan Participant s, 2003 Urban-Brookings Tax Poli Associates, I Plan W end 1999 and no c., 2003. rkplace Saving (A Repo . Valley Forge, PA: T ycy ear-end 2003 (Figure 9). Center, Septem 0–2 hrt on Corpor e Vanguard Group, The V 54.0 ber 2003 ate Defined Contributi The decline in assets refl . 33.5 11.7 anguard Center for Retirement Research, April on P 57.5 eclts the greate ans). Boston, MA: Fidelity 261.6 r importance of and Jack Van D As in previous y erhei, Temple University ears, the EBRI/ICI data , is research director of the E base for year-end 2003 finds that participant asset mployee Benefit Research B E N E • F IThe average T account balance among participants who consistently held accounts since 1999 a Age, 2003 .........................................................................................................................................20 Introduction Using administrative records, the EBRI/ICI database reports the account balance held in the investors and Do sav mest ers. C ic St h>2–5 oo i, Laib ck Market son, Madr 18.9 Ind ian, and exes, Decemb 14.9 Metr 29 ick (A er 1996–Decemb 2.0ugust 2003 49.3 ) find ter 2003 hat d 108.0 efault options have an Source and Type of Data Percentage of Account Balance Invested in Equity Funds 2004 Investm invest . me ent returns because their account balan nts, 2003. ces tend to be large relative to their annual allocations vary considerably with age (Figure 4). Younger participants tend to fa No. 272 vor equity funds, Institute (EBRI) Fellows P Number increased 29.1 percent in 2003 and 17.1 rogram. Special thanks 35to Luis Alonso, percent altogether since 1999. The change in a research analyst at EBRI, who Average 10 28 >5–10 9.0 6.9 -3.1 42.1 60.3 401(k) Un By less yR plan a ear-end o theno erwise in t the participant’s current e rm 2003, 401(k) ous i dim cated, all asset allo pact on plan assets had grow 401(k) particip catio mploy n av ants’ cho er. erag n t Retirem es a io ces. $1.9 trilli F re expres igure 5 ent savings held in sed as on and an esti a dollar-weight m plans at previous ated 42 m ed avera illion ge. For exam E ple, Poterba Figure 8, Ave S E AR C H (May rage 401(k) 2004) finds Account Balance at Year-E that, although retirement wealth nd 2003 Am in 401(k) accounts ong Participant is reduced by the s Present From 38 (month-end level) Age Several EBRI and ICI members provided records on active participants in 401(k) plans they Iy Chan, Sewin, and Ann Huf engar, Sheena S., Wei Jiang, and Gur 12% contributions. In addition, f Stevens. “What You participants in their Huberman. “ Don H ’t Know Can’t ow Much Choice is Too 60s have a higher pr Help You: P opensit Much? ension Knowledge y: to make withdrawals. managed the database. In addition, thanks to Jenni while older p 30s articipants are All more likely 4.8 fer McCain at IC to invest 2.8 in fixed-incom -6.0 I, who assisted in preparing the 38.6 e securities such 40.3 as bond funds, GICs participant’s account balance is a result of contributions, investment returns, withdrawals, of Plan Total Total Total Account workers in the United States participated in these pl em deferred ployers or tax liab rolled over in ilities, a 40 Average A 1(k to indi ) with an sset A vidual llocation emplretirement ac oyer m of 401(k) A atch con ancounts (IRAs) are not inclu s. In an ongoing effort t sisten ccounts, by tly has a hi gh Inv er rate estment Options, 2003 oof track 401(k) d retu ed in th rn than an is analy plan y ots his. er EBRI Issue Brie Year-End 1999 Through f (ISSN 0887 -137X) is published at $300 pe Year-End 2003, by Age and Tenure r year or is included as part of a me ......................................................... mbership subscription by the 20 Cohort Zero 1–10% >10–20% >20–30% 0–2 >30–40% > 32.2 40–50% >50–60% 20.8 5.4 >60–70% 51.6 >70–80% 155.1>80–90% >90–100% administered for year-end 2003. These plan record keepers include mutual fund companies, I N S TI TU TE August 2004 Contributi 29 and Retirem ons ____ Fore, Dougla 16 ent Decision Making.” to 40 ___ 1(k) Ret _. Pa srticipant Re . “Do We Have a Re irement Plans.” NBER Working Paper port Card for PRC Worki tirement Crisis in Am December 2 ng Paper . No. 1 003: Risin . No. 200 0185 erica?” . Cam 3-10. g S b Rridge, MA: National t esearch Dial ock Prices Contribute to Ph 10% iladelphia, P ogueA . No. : 77. New Higher graphics. Any views expressed in this report are t and other stable value fun borrowing, ® and loan repa ds, or m yments. oney hose of the authors and should funds. On av 1 erage, participants in their 2 not be ascribed to 0s had 51 percent of Particip Emplo 220 yan ee Benefi ts in th Iyen teir Research Institute, 2121 K Str gar20 , Jis an hg o,l an d ap d pro Hube >2–5 xim rm atel an y(2 2 eet, NW, Suite 0 p 0 10.6 e 3rcen ) concl t ofude t60 h7.8 e to t 0, Washington, D hat tal assets in th partic -2.3 ipatio Cn 20037- e i a2 n003 44.3 401 1896. P EBR (k) pl Ians i /ICI eriodicals postage rate paid in 68.2 d s hi atab ghe ase; r in plans offering a type of account considered. Samwick and Skinner (March 2004) conclude that 401(k) plans are as good as or participants, the Em Furtherm Participant ore, s account balances ar ployee Benefit Research Institute (EBRI) Plans e net of unpaid l Partio cian pant balances. In ad s and the Invest dition, the E Asse ment tsBRI/ICI database Company Institute Balance 20s 38.3% 2.7% 3.3% 4.8% 4.9% 6.4% (percent of account balanc 7.0% 6.1% es) 6.8% 4.6% 15.2% insurance companies, and consulting firms. Although the EBRI/ICI project has collected data from Bureau of Econom Pension Research Council, The Wharton York, NY: TIAA-CREF In Figure 9, Cha Returns and ic Research, Decem Account Bala nge in Average Account Balances >5–10nces stitute, Septem be Sc r 2003. . Valley hool, Uni 1.9 Forge, PA: T v bersity e0.9 r 2003. Am of Pen o hng 401(k) Par e Vanguard Group, The V -7.8 nsylvania, 37.3200 ticipants Present From 3. 30.2 anguard Center for Year-End their account balances invested in equity funds, compared with about 35 percent of account balances the officers, trustees, or others sponsors of E Washington, DC, 2 and additional mailing offices. POSTMASTER: Se BRI, EBRI-ERF, or their staffs. Nei nd address changes to: EBRI ther EBRI nor Issue Brief, 2121 K Street, NW, participants in han thd eir ful3 of 0s i ho nve ld stm 13e p nt e opt rcen it; p ons acom rticip pan ared ts in wi tth heir 40 plans s of ho feri ld n 34 g 10 percen or m t; p ore i articip nvestm ants in ent opt their ion 50 s. s hold better than defined benefit pension plans in providing for retirement. In addition, Chernozhukov and Hansen • Average account balances increased in 2003 across all participant age and tenure groups. (ICI), for any 1–10 in a collaborative effort, have gath given year captures a snapshot of 8,008 ered annua the account balances 50,896 l data on 401( at yk) ear-end and thus reflect plan participants since 199 $1,749,595,391 s the 6 $34,376 >10–20 0.01 -1.6 -9.3 33.4 19.0 b 30s 27.6 3.4 3.6 5.1 5.5 7.4 7.6 7.2 7.9 5.7 19.0 1996 Suite 600, Washington, DC 2 through 2003, the uni0037 verse of data providers vari -1896. Copyright 2004 by Emplo es fro yee Benefit Resea m year to year. Thus, rch Institute. All rights reserved, N aggregate figures o. 272. 1999 Through Year-End 2003, by Age and Tenure ......................................................................... GICs and 21 Retirement Research, February 2004. EBRI-ERF lobbies or takes positions for participants in their 60s on . Participants in thei specific policy proposals. EBRI invites co r 20s held only about 21 percent o mment on t f their accounts in his 37 percent; and participants in their 60s hold the remain3ing 14 percent of the total assets. For the distribution of (n.d.) find that 401(k) plan participation has a positive effect on wealth. Plan Loans 40s All 0.9 -0.9 -7.8 31.6 21.3 However, balances for some older participants had not yet recovered from the impact of the from entrance of new plans and new participants and the 11–25 200 a wide variety of 401( 11, k) plan record keepers. 738 202, This exit of participants who 235 Issue Brief provides an u 5, retire or change jo 974,784, pdate on 4 299 01( bs. k) 29,544 40s 28.4 4.3 4.2 5.6 S&P 5005.9 7.6 7.7 6.9 7.2 5.1 17.1 17 in this report generally should not be used to estimate time trends, unless otherwise indicated. Chernozhuko Mitchell, Olivia, and Step Friedberg, Leora, and Anth v, Victor, and hen P. Utkus. Christian Hansen. “The on “Lessons y Webb. “Retiremen fro Im m p Behavioral Finance for Retirement Plan act of 401 t and the Ev (k) Participation o olution of Pensio n the Wealth n Structure.” NBER 0–2 28.3 Equity 18.2Balanced5.1 Bond 46.8 Money 134.2 Other Stable Company resea particip rch. ants b fixed-incom y For e age or xam tenu ple, Eve e re, see securities (bo nth ae Ap nd Macphe pend nd funds, GICs a ixrs (Fi on (Dece gure A3 m ) baer 2003) e v nd other ailable th x stable value funds, and m ro am ug ine the h ICI’s We positive im b site. pact of oney 4offe f ring a unds n employer Figure 10, Average Account Balances Among 401(k) Participants Present From Year-End 1999 401(k) Plan Asset Allocation, Account Balances, and Loan three-year bear market in equities. For example, for participants in their 50s with more than When analy plan participants’ zing account ba asset allocations, acco lances, it is im The Emplo unt ba yportant to recognize the co ee Benefi lances, and loan activity t Research Institute (EB m as of bR ined effects of actions of I) was founded in 1978. Its year-end 2003. In mission is to 50s 26–50 32.5 Characteristics of Participants w 5.1 4.6 5.9 8,715 5.9 7.3 313, ith Outstanding Loans 919 7.2 6.2 9,519,335,6.1 021 4.2 30,15.0 324 >2–5 10.7 7.2 -1.7 40.1 63.3 Records were encrypted to conceal the identity of employers and employees but were coded so that 11 Figure 13 Distribution.” Design.” PRC W Working Paper VanDerhei, Jack, and Craig Copeland. “ ma tWorking Paper ch on orking Paper particip. No. 9999. ation i . Cam . No. 2003-6. Philadel n th be ridg 40 Cam 1e, MA: Massachusetts Institute of Technolog (kb ) ridge, MA: National Bur plan. Engel E phia, PA: Pension Resear RISA At hardt an 30: The Decline d Kumaeau of Econom r (May 2ch Council, The 0 of Private-Sector Defined 04) find ic Research, September y, n that. t d. he e xistence of an Investment co Opt mb ions ined), while those in t Offered by Plan heir 60s inves Fundsted 40 percent of their accounts in t Funds Funds Funds hese asset Value Funds s. The Stock Through Year-End 2003, by Age and Tenure .................................................................................. 39 21 Munnell and Sundén (2004) emphasi >5–10 ze the practical changes i 2.7 0.8 n worke -7.0 rs’ particip 33.9 ation, contribu 28.9 tion, asset contribute to, to encourage, and to enhance the development of sound employee benefit 30 years of job tenure (who had an account since 1999), the average account balance was still 60s addition, this 30 participants present in consecutive y 41.4 update tracks the account balances of 5.6 4.6 5.5 ears in the da5.3 6.2 tabase as co a large and representative sam m5.9 4.7 pared with the effects of entry p4.5 le of 401(3.0 k) plan and 13.4 51–100 Most participants in 401( 6,241 k) plans are 442,in plans that off 031 er borrowing 13,907,692, privileges. 666 In the 200 31,463 3 180 both could be tracked over multiple years. For conveni em en pl ce, m oyer m inor i atcn hi ves ng tpr me ont >10–20 gram opt rai ions ses 4 are 0 -0.9 not 1(k) sh sa ow vin. ng -2.5 . -9.6 29.9 13.4 Wharton Sch Activity in 2003 2003 Benefit Pro ool, Universit . mises and Annuit y of Penns Loan Balances as a Percentage of 401(k) Account ylvy a Pa nia, 2003 yment. s? What Will It Mean?” EBRI Issue Brief no. 269 (Employee Equity, Bond, tendency Money, of younger and/or Balanced Funds participants to favor 58.7% equity12. fu4% nds and older part 17.7% icipants to favor fixed-inc 8.3% ome allocation, loan, and withdrawal decisi programs and so ons that muund public policy st be made to ensure the po through objective tential of resear 40 ch and 1(k) p educati lans is on. EBR realized I is the only . down 9.3 percent at year-end 2003 compared with year-end 1999. All participants throug exit of plans 31.6 and participants from 4.2 h the severe bear 4.1 5.4 the database. market that 5.6 7.2 caused broad stock7.3 6.5 market indexes to decline about 6.8 4.8 16.6 Figure 11, Percentage of Eligible 401(k) >20–30 -1.4 Participants With Loans, -3.3 -8.7 28.8by Age, 2003 12.1 ...............................22 EBRI/ICI database, 86 percent of participants were in plans offering loans. However, as has been the 101–250 Data provided for each participant include particip 5,041 789,544 ant date of birth, from 26, which an age cohort i 371,215,384 s 33,401 Choi, Jam es J., David Laibson, and Brigitte Benefit Research Institute, May 2004) C. Madrian. “Plan Design and . 401(k) Savings ® ® privat Balances for Participants With Loans, by Age, e, nonprofit, nonpartisan, Washington, DC-based organization committed exclusively to Helm EW qui an and ty, Bond, ho we are securities holds up even w Pal M adi oney, no ( and/ Aprior B l 20 al 0anc 4) s ed Funds umma hri en accounting for invest ze res , ults from EBRI’s anme nual nt options of Retirement C fered by th onfidence S e 401(k) plan sponsor. urvey. by Sarah Holden, ICI, and Jack VanDerhei, Temple University and EBRI Fellow 31 Note: The electronic version of this 50s Allpublication was created using v -2.9 -3.3 -8.6ersion 6.0 of 24.5 Adobe 7.0 Acrobat. 18 40 percent be tween year-end 1999 and early 2003, and the rebound that increased broad equity index 20s case for the eight 30s years that the EBRI/ICI data 40s collecti 50son project has tracked 401(k) plan 60s thAll Ages See the Appebndix (Figure A4) for the distribution of plans, participants, and assets by investment options, assigned; participant date of hire, from Choi, Laibson, Madrpublic ian, an poli d w M h cy r e ich a te triecsk ( earch A nure range is assig pri and l 20edu 04)cat fiion on nd that 401(k) econ ned; outstanding loan omipa c s rticipants ecurity and em appear to experie balance; ployee benefi nt is ce a sues. 160 Figure 12, Percentage of Eligible 401(k) Participants With Loans From the Plan, by Age, Tenure, or Outco Munnell, Ali Hu 251–500 rst (m Nov es,em ” Hel NBER Worki c ber ia H., and Annika Su m 2 an, Ruth, and Variny Paladino. “ 003) conc ng Paper l2, udes 185 that 0–2 . No. 104 ndén hous.ehol Coming Up 86. Cambridge, MA: ds t 28.9 hat 769, W ent ill 985 Short: The C ered Am 18.1 ret ericans Ever Become Savers? The 14 irement National Bureau of Econo 6.0 hallenge of with lowe 26, 43.5 r-t 116, 4ha 01(k) Plans 061, n-pre 641 131.6 dicted . mic we ® alt Retirement h 33,918 and GI Cs Allocations to com and/or Other Stable Val pue Funds Tenure, or Account Size, 1996, 1999, and 2003 any stock continued to show a more mixed pattern by age. Participants in 51.75 12.1 7.1 4.2 23.3% Source: Tabulati ons from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Those having trouble opening the pdf document will need to upgrade their computer to Adobe values by 34 Plan Loans percent over the last 10 months of 2003. Relationship of Age and Tenure to Account Balances available thro participants’ l ugh ICI’s Web s oan activit ite. EBRI’s member >2–5 y, relatively 12.5 ship includes a few participan 7.7 cross-section of ts made use of this borrowin -0.6 pension funds; businesses; trade associations; 37.0 65.0 g privilege. At year- learning heuristic and respond to a positive feedback effect, whereby higher recent market returns encourage funds in the participant’ Account Size, 1996, s investme 1999, nt portfolios; and 2003 and asset values attr ............................................................................................. ibuted to those funds. An ...22 generall® y engaged in near-sighted consumption during their working years. Washington, Rese 501–1, arch, Ma 000 Confidence Surve DC: Brookings Institution y 2004; also National T 1,293 y, 2004.” ax EBRI Issue Brief Press, 2004. Journal. Vol. 904,097 LVII, No. 2, no. 268 (Em Part 1. Washington ployee Benefit Research Institute, A 34,951,373,899 , DC: National 38,659 pril Note: Row perce their 20s had ntages may not a about 14 percent of their 401(k) dd to 100 percent because of rou Age C nding. ohort plan account balances in com pany stock, while Equity, Bond, Money, and/or Balanced Funds, Russell 3000 1996 1999 2003 >5–10 4.4 1.1 -5.8 30.2 29.5 Reader 6.0, which can be downloaded for free at www.adobe.com/products/acrobat/readstep2.html labor unions; health care providers and insurers; government orga 20 nizations; and service firms. • Loan activity among 401(k) plan participants in 2003 was essentially unchanged from earlier There tends to be a positive correlation between ag end 200 higher sh3, o ort-tn elrm y 18 savi percent of those eligi ng (while a wealth effe ble for loans cte wo and account balance in each of the eight uld produce th had loans out e opposite r standing (Fig esult). Clark ure 11). and d’A years mbrosio The portion of 401(k) balances invested in equities increased in 2003, reflecting the strength of account balance for each participant is the su >10–20 m -0.3 of the participant’ -2.4 -8.3 s assets in all funds. 25.5 12.0 Plan balances Tax Association, June 2 2004). 004: 275–298. 1,001–2, 140 500participants in their 40s 989 had about 18 1,534, percent, and participants in th 268 65,580, eir 60s had 1 394,313 4 percent (Figure 4). 42,744 32 Source: Tabulations from the EBR All I/ICI Participant-Directed Retirement 16% Plan Data Collec14% tion Project. 13% Figure 13, Loan Balances as a Percentage of 401(k) Account Balances for Participants With Loans, and Com • This pany S Issue Br tock ief provides an update on 401(k) plan 41.7 6.6 participants’ 14.5 asset allocations, account 6.9 28.7% 12 See the App Endnotes endix (Figure A5) available through ICI’s Web site. In addition, Figure A6 presents asset (December 2003) find that educationa >20–30 -3.7 l seminars-4.8 can produce significant -9.5 23.0 changes in 2.0 how people think about covered by the EBRI/ICI d As in previou years. As in o as tabase, and am years, loan ur earlier studies, loan activity varies with age, tenure, activity ong the pa varies with rticipants with account balances at the end age, tenure, salary, account balance, and plan size. salary, and a of ccount equity Butrica an prices. Bey d Uccello ond the (May 200 market-drive 4) find that, n changes, 40 while baby boo 1(k) plan mers will b participants do not appear to have e better off than earlier generations in are constructed as the sum of all participant balances in the plan. Plan size is estimated as the sum of Munnell, Ali cia H., Kevin E. Cahill, and Natalia A. Jivan. “How Has the Shift to 401(k)s Affected EBRI’s work advances knowledge and understanding of employee benefits and their >30 -9.2 -6.3 -11.0 19.7 -9.3 by Age, Tenure, or Account Age Cohort Size, 1996, 1999, and 2003.................................................................23 2,501–5, Equity,000 Bond, balances, and loan activity Money, and/or Bal 434 anced Funds as of y , ear-end 20 1,527,572 03, as measured by the 72,721, collaborative EBRI/ICI 619,145 47,606 allocation by salary and investment options and Figure A7 presents asset allocation by plan size and and plan for retirement. Chan and Stevens (December 2003) find heterogeneity in how individuals consider each y absolute term ear from Of those participants in plans offering loans, the s (e.g 1999 through 2003. The ., real balance. household incomes an re is also d poverty rat a positive correlat es), thhighe ey will be no st percentages of participants with outst ion between tenure and account better off (and in some cases anding made significant asset reallocations or to have made changes in their loan activity. Buoyed by strong active participants in the plan and, as such, does not necessarily represent the total number of 60s bimportance to All th-6.8 e nation’s econo -5.7 my among policy -9.6 m14.9 akers, the news -8.7 media, and the public. It Choi, Jam the Retirement Age?” es J., David Laibson, Brigitte Hewitt Associates, LLC. Issue in Brief. No. 13. Chestnut How Well Are C. Madrian, and Andrew Metric Employees Saving and Hill, MA: Center for Retirem k. “Consum Investing in ent Research at ption-Wealth 401(k) Plans: 2003 1 20s 30 25 25 Asset Allocation, by Investment Options invest 120 and Com ment opti pany S ons. 36, toc 37 k, and GICs and/or 5,001–10,000 Participant-D financial factors in irected Retire 238 choosing a retirem ment Plan database— en 1,t d 642, ate and 959 that t the he w heterog orld’s largest repository ene85, ity is 708, d888, irectly related to 113 of inform theiation r 52, knowled 167 ge The Employee Benefit Research Institute is a nonprofit, nonpartisan, public policy research organization that worse off) than current retirees on a relative 0–2 basis 21.0 (e.g., retirem 14.5 ent incom 5.1 e relative to preretire 34.2 m 95.3 ent income). balance (Figure 8). loan balances were am The accumong ulation that a participant’ participants in their 30s, s acc 4ount 0s, or 50s (Fi balance represents reflects gures 11 and 12). In ad the dition, equity market returns and ongoing contri does this b butions y conducting , 401(and p k) account ba ublishing policy re lances increased in 2003. A search, analysis, and special reports on mong employees at the sponsoring firm • Eighteen percent of eligible . participants had loans outstanding at the end of 2003 and only Co Boston College, Septem movemeHewitt Universe Benchmarks nt of the Wron ber 2003 g Sign.” 30s . NBER. Lincolnshire, IL: Hewitt Associates, 2004 Working Paper 22. No. 10454. Cam 18 bridge, MA: National . 19 The mix of investm>2–5 ent options offered by a pl 11.7 5.8 an sponsor significantly affects the -1.2 28.8 50.4 asset allocation about individual 401( about the financial factok) pl rs. an participant accounts. Figure 12 >10, Ot 000her S dto abl es e V noal t l ue Funds obby or tak 270 e positions on legi6, slative propo 869, 36.852 0 sals. 8.4 4.7433,383,348, 2.2580 21.3 63,08525.3 VanDerhei and Copeland (May 2004) develop a national model 21 that encompasses all sources of retirement employee benefits issues; holding educational briefings for EBRI members, congressional and sumW of three factors over time: contributions; inv hat we do participants with five or f ewer years of tenure or estment returns; and withdrawals, borrowing with more than 30 years of tenure were le , and ss likely participants with accounts since y 33 ear-end 1999, the average account balance increased 29.1 percent Investment options are grouped into eight categories. Equity funds consist of pooled investments Table of Contents 12 percent of 40s >5–10 participants with account balan 3.2 16 -0.6 ces of less than $10,000 had l -6.2 14 21.7 14 17.2 oans outstanding. Bureau of Econom ic Research, April 2004. Figure 8 The percentage of participants holding no equity funds also tends to increase with tenure (see the Appendix of the participants in a pla n. Figure 5 divides all of the plans in the 2003 EBRI/ICI database into four income and assesses financial secu Percen rity federal agen im tage plicatio of Eligible 401(k cy s nts aff, and th for future e news retirees. ) Partici media; Enand sponsoring public opinion survey gen pants With , Gale, and Uccello (May 2004s on emplo yee 100 >10–20 -1.4 -3.4 -8.2 17.0 2.2 loan repay AllSource: Tabul m to use the loa ents. The m ations from t an he E g 45, prov nitude of each of these f 152 BRIision t /ICI Part hian other parti cipant-Dir 15, ect047, ed Ret actors relative to the size of the account balance c 358 ipants (Figur irement Plan Dat e 12). Further a Collec 775, tion P 984, rm oj308, ec ore, onl t.452 y 12 percent of 51,569 19 in 2003. 2 50s 30 12 11 11 primarily invested in stocks. These funds include equity mutual funds, bank collective trusts, life Poterba, Ja (Figure A8),mes M. “Saving for Retire av Holden, Sarah, and Jack VanDerhei. “4 ailab Avlerage 401(k) A e through ICI’s W ccount eb site) ment: Taxes Matter.” .Balance at Y 01(k) Plan ear-E Issue i As nd 2003 A set Allocation, Account Balances, and Loan n Briefm . No. 17. Chestnut H ong Participants ill, MA: Rugh (June 2004; analyzing TIAA-CREF’s data), Hewitt Associates (2004), Utkus and Young (February co Th me In • binations of investm vAm estm ong participants with lo ent Combenefit issues. p >20–30 any Institu ent offerings, te is th EBRI’s Ed -5.7 ans outstandi e n starting with a atio uc n -6.2 ation and Re al asso ng at ciatio -9.9 the end base group consisting of pl se n of t arch h F e of 200 U.S. i und 14.4 (EBRI-ERF) performs n 3, t vestm he level of the un -8.8 ent comp ans that do not any i the char ndu paid stry. itable Its , anda April 2004) find that many households appear to be saving adequate amounts for retirement. Sch 40 olz, • This update tracks the account balances of a large and representative sample of 401(k) plan Loans From the Plan, by Age, Tenure, Minor investment options are not shown; therefore, row percentages will not add to 100 percent. influences the change in account balan participants with account balances of 60s ce experienced by less than $10,000 had l 10 the participant. 9oans outstanding. 9 a,b c Source: Tabulations from the EBRI/ICI Par >30 ticipant-Direc -9.8 ted Retirem -7.2 ent Plan Da -10.6 ta C 31 ollection Pr 12.9 oject. -15.5 insurance separate accounts, and other pooled investments. Similarly, bond funds are any pooled ________. “E Center for Re The principal findings as of y Activity 2004 tire mp ; an m loy ent Re alyzing i ees’ n 2002.” Invest se Th arch at Boston College, May e ICI Pers Van m educa ear-end 2003 are as follows: ent Decisions about gutiona ard pective. Gro l, and up’s scientif Vol. 9, No. 5; data), and ic func Co 2004. m Fi ti pons of the Instit any de and lity Inv StEBRI Issue Brief ock.” estm NBER Working Paper ute. EBRI ents (2003) -ERF no. 26 pr is a tax-ex esen1 (I t recen nvestm . No empt organization t upd . e ates nt on Introducm tion em................................................................................................................... bership includes 8,643 open-end investment companies (“mutual funds”) ................................ , 629 closed-end invest 4 ment Present From Year-End 1999 Through Year-End 2003, by Age and Tenure Seshadri, and Khi offer co tatra m balance represented 13 per kp uany stock, GICs, or ot n (January 2004) conclude her stable value fund cent of the account bala that fewer than 20 pe s.rcent Participants in these plans—which nce, net of the of households ha unve paid loan bal less ance, down b a participants through the severe bear market that caused broad stock market indexes to decline 34 All Guarant 80 eed i nvestment contracts. or Acc All ount -0.4 Size, 1996, 1 -1.3 999, and 20 -7.7 03 29.1 17.1 Tenure (years) account primarily See the Appendix i (Fi nvested in bonds, and balanced gures A9 ansupported b d A10) availab y contributions le thro funds are poole ugh and g ICI’s rants. Web site. d accounts invested in both stocks Asset Allo definecation d contri ............................................................................................................... bution plan participants in their respective record-keeping systems. In add ....................... ition, Agn4 e w and 1022 8. Cam com Co bridge, MA: National Bureau of m pp ani any es, I12 nstitute and Employ 6 exchange-traded fu ee Benef nds Econ , anom d it Research Institute, Septem five s ic Research, January ponsors of unit invest 200 me 4. nt b t err 2003). usts. Its mutual fund members retirement wealth accumulated than their optimal targets. Shackleton (November 2003) reviews numerous generally slightly offer equit from y recent y funds, bon ears. d fund (dollar s, money s) funds, and balanced funds as investment options— about 40 percent between year-end 1999 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. and early 2003, and the rebound that increased broad Dec- Jun- Dec- Jun- 0–2 Dec- Jun- Dec- Jun- 27 Dec- Jun- 24Dec- Jun- 25 Dec- Jun- Dec- Changes in Account Balances Average Loan Balances Balduzzi (May 2004) examine equity portfolio choices of 401(k) plan participants, focusing on allocation and bon Account Ba ds. C manage assets om apany lances stock ............................................................................................................... of approxim is equityate inl t y $7.4 he plan’s trillion, accounting sponsor (the em for approxim ployer). Mone ately 95 y funds co perce..................... nt of t nsist of otal industry 5 assets, Poterba, James, Joshua Rauh, Steven V studies since 1993 on the preparedness of th ee ba nti, by and David Wise. “Utility Evaluation of Risk in boom generation for retirement. Fore (September 2003) Sample of 4.5 million participants with account balances at the end of each year from 1999 through 2003. had the highest allocation to equity funds. Participants in plans that offer GICs and/or other stable 35 equity index values by 34 percent over the last 10 months of 2003. 96 97 97 98 EBRI Issue B 98 99 riefs 99 are period 00icals providing exp 001996 1999 2003 01 ert evaluati 01 02 ons of emplo 02 yee benefit issues and 03 03 b Asset Allocation >2–5 24 22 22 $200,000 For an updated analysis of year-end 2003 account balances, see the Appendix available through ICI’s Web This section exam Plan L choi oAm aces ns ..................................................................................................................... ong participants with o am ines the change in account ba ong large-cap, small-cap, a utstanding l nd inlances of a group of ternat oans at th ional equi e end of 20 ty fund participants who held hol 03, t ding hs e . average unpaid balance was .......................... 5 those funds d and esigned to m re Age and tenure cohorts are based on participant age and tenure at year-end 1999. present mo are t intain a stable share han 86 million indivi price. dual s Stable value products such hareholders. as guaranteed summarizes findings on the current state of retirement security in the United States and discusses expected ________. “Passive Decisi Retirement Saving Accoun ________. “Appendix: A ons ts.” and Pote NBER Working Paper dditional Figures for the E nt Defaults.” NBER Worki . No. 9892. C BRI/ICI Participant-Directed Retirement Plan ng Paper ambridge, MA: National Bureau . No. 9917. Cambridge, About the EBRI/ICI Database value funds (but no company stock) as an investment option allocated a smaller share of their assets 41 trends, as well as critical analyses of employee benefit policies and proposals. EBRI Notes is a All 22 >5–10 23 2318% 18% 18% 18 19 site. Figure A11 compares the median and average account balances in the EBRI/ICI databases from 1996 to accounts at the end of each y • Recent Research On average, at y $6,8 39. on Again, sim 401(k) P ear-end 2003, ear from lans ilar to other y ................................................................................................ 45 1999 thr percent of ears of ough 2003. Anal 401(k) analyplan participants’ sis, loan balances as yzing a consistent group of assets wer a percentage of account balances e invested in .................. 5 Figure 2 f invest uture t m rend ent contracts (GIC s in social insurance pr s) and other st ograms. Poterb able value funds a, Rauh, Venti, and are reported as one cate Wise (August 2003) sim gory ulate th . The e MA: National Bureau of Econom of Economic Data Collection Project for Research, August 20 ic Research, August 2003 03. Year-End 2002.” ICI Pers . pective, Vol. 9, No. 5A; and EBRI Issue Brief Sources: Bloomberg, Frank Russelmonthly l Company period , and S ical providing cu tandard & Poor'srrent information on a variety . of employee benefit topics. to bond and 20 money market funds than the base group , and had lower allocations to equity funds as 3 6 >10–20 15 13 14 • By year-end 2003, 401(k) plan assets had grown to $1.9 trillion and an estimated 42 million 2003. Figure A12 presents the distribution of 401(k) account balances by size at year-end 2003. The EBRI Acc /ICI Database ount balan.......................................................................................................... ces are net of unpaid loan balances. Thus, unpaid loan balances are ...................... not included i6 n any of the equitRecent R y I fu n this e nds,f 16 percent in fort, e known as t search on 401( co he E mBRI pany /ICI Particip stock, 9 k) Plans percent in balanced fu ant-Directed Retiremennds, 10 t Plan Data Co percent in b llection Proj ond ect, EBRI participants re potential dist(net of the unpaid loan bal ribut mioves the ef ons of wealfect of participants th dependina gnce) for participants on the aand pla sset allon catio s entering and leaving the database ( n of t with loans was 13 percent at y he 401(k) portfolio, while also ear-end 200 and/or 3 (Figure a 401(k) Plan Average Asset Allocation, 1996–2003 “other” category is the residual for ot EBRI’s her investment Pension Investment Report s such as real estate funds. The final categor provides detailed financial information on the universe of y, no. 261 (Investment Company Institute and Employee Benefit Research Institute, September 2003). O The S&P ur 500 Index cons Age istsCohort of 500 stocks chosen for market size, l iquidity, and industry group representation. The Russell well. Alternatively, particip 20s ants in plans that offer company stock (but no stable value products) as The EBRI/ICI Participant-Directed Retirem >20–30 11 ent Plan Data Collecti 10 on Project is the world’ 10 s workers in the United States participate eight asset categories described. d in these 24 plans. The portion of 401(k) balances invested Source and IC and Ty I have pe of c Data........................................................................................................ ollected data from some of their members that serve as plan record keepe ................... rs and adm 6i nistrators. a highlight funds, 1 ing the im 3 per port cent in guaranteed investment cont ance of other sources of retirem Figure 10 ent inracts (GICs) and other stable value funds, and come (Social Security, defined benefit pensions, 401(k) univer 13). In addition, the sam se) on the ove The trend of recent defined c rall average. defined ben e as in other A little less t efit, defined cont ontribution years, there is han retire rib half, or ution, and 401( ment plan research ap variation around this average, with age (lower the 4.5 million, of t k) plans. EBRI hpears to focus on four e participants with Fundamentals of Employee “unknown,” consists of funds that could not be identified. Figure 6 $160,000 36 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization. Clark, Robert L., and Made Rugh, Jacob S. “What Happened to TIA leine B. d’Am Abros -CREF Part io. “Ignorance Is Not Bliss: The Im (percent of total as icipant Premsiets um) and Asset Allocations From portance of 20s 12 11 12 an investment optio >30n had dramatically lower allocatio 7 ns to equit 9 y funds and 8 balanced funds than the largest repository of information about individual 401(k) plan participant accounts. As of See discussion of these observed correlations in the Appendix (Figures A13, A14, A15, A16, and A17) Distribution of Plans, Participants, and Assets by Plan Size..................................................................... 6 in equities increas The data include dem ed in 2003, reflecting ographic information, ann the stre ual cngth o ontribuftio equit ns, p yl price an bals a. Bey nces, asset allo ond the market-driven cations, and loan and individual savings). Average Account Balances Among 401(k) Participants Present From Benefit Programs offers a straightforward, basic explanation of employee benefit programs in 5 percent in money funds. accounts at the end of 1999 had accounts at th older the participant), tenure (lower the higher th e end of each y e ten ear from ure of the par 1999 through 2003. ticipant), and account balance Note: All index emerging questions and issues: (1) analyzing whet es are set to 100 in December 1996. her defined contribution plans will be able to 30s 21 Financial Edu 2000 to 2004 ________. “ ?” cation.” Research Dialogue Rese C Ass an 401(k) A arch Dialogue e30s t Alloc . No. 80. New York, NY: TIAA-CREF Inst at ccu ion Distribu m . No. 78. New York, NY: TIAA-CREF ulations Generat tion of Pa e Significant Income for Future Retirees?” rtic20 20 20 ipant Account Bala itute, June 2004. Institute, Decem nce to ber ICI publications a b available throug base group. Finall h ICI’s Web site. Fig Account Size y, in t ure hos A1 e plans that offer bot 5 is similar to Figure h company 8 except it co stock and stable value products, com vers all 15.0 million participants pany Thi Dece s sy mber 31, 2003, the EBRI/ICI data stem of classification does not consib dase includes er the number o statistical inf f distinct invo ermation about: stment options presented to a Asset Allo balcation ances. ............................................................................................................................................ 6 Distribution of Plans, Participan changes, 401(k) plan partic the privts, and Assets, by Plan Siz ate and p ipants do n ublic sectors. ot appear to EBRI Databook on Employee Ben have m e ade significant asset reallocations or to efits is a statistical reference Year-End 1999 Through Year-End 2003, by Age and Tenure 53 The average (lower the higher the account balance). provide i 401(k) account balance of this consis ndividual participants with an adequate re tent group of par tirement, (2) exploring t ticipants edged down less t he role of com han pany stock a 2003 . Perspective. Vol. 8, n40s o. 3, and EBRI Issue Brief no. 251 (Investm 22 22 22 ent Company Institute and • Equity securities—equity funds, t <$10,000 he equity portion of balanced funds, and company stock— 13 in the year-end 2003 EBRI/ICI database rather than the consi39 stent subset of 4.5 m 37 illion partic35 ipants in Figure 8. Asset Allocatio stock appears to have displ given parti n by c Company ipa b n A t,g but e ........................................................................................................ rat Stock in 401 volume on her thaced equity e t bemplo ypes o (k) Plans With yf ee b opt a einef nd balan ons it pro prese grams ced f nCompany ted. and work Prel und iholdi mi Stock, force nary ngs, and GICs and other stable value research related by iss Age anal ues. , 2003 y ................... zing 1.4 mi7 ll ion 51 The 2003 EBRI/ICI database contains 45,15 have made changes in their loan activit 2 40 y1(k) . Partic plans (about ipants’ allocations to com 10 percent of the 401( pany stock rem k) ained in For example, Eve Age Cohort n and M 40s acphe Tenure (Years) rson (June 2004 1999 ), while discussi 2000 ng the 2001 benefits an 2002 d costs of i 2003 nvesting in 50 1 percent from 1999 to 2000, declined another 1.3 percent in 2001, fell 7.7 percent in 2002, and then in 401(k) plans, (3) examining the importance of the plan’s design and participants’ levels of 4 50s 17 18 19 b Russell 3000 Em Index ploy. Taco ee Benefit Research Institute, N ma, WA: Frank Russell Co $10,000–$20,000 ovem mpany 32ber 2002). . 30 29 represented 67 percent of 401(k) plan assets at participants drawn from the 2000 EBRI/ICI dat y aear-end 2003, up f base suggests that thre om she 62 percent in 2002, er number of investment options $120,000 48 Asset Allocation funds appear to have displa 48 This update exten by Investm ds pr eev nt O ious f ptions ced other fixed-incom ind......................................................................................... ings from the project e invest for 19ments. These effects 96 through 2002. For year- tend e to occur across all .......... nd 2002 7 results, see 20s All $10,007 $12,645 $15,108 $15,818 $23,888 • 15.0 million 401(k) plan (pe participants rcent of particip , in ants) universe of pl company stoc line with previous k,ans) with $776.0 bil report some statis ytears. ics on lion defi in asset ned co s (about 41 percent of ntribution plans with cothe $1.9 trilli mpany stock h on invested in oldings and the 37 increased 29.1 percent in 2003 (Fi financial education on part gure 9). From icipants’ deci yeasions, and (4) r-end 1999 (ne measur ar the peak of the stock m ing defined contribu ation rket) to plan 32 60s >$20,000–$30,000 Contact EBRI 0–2 5,841 Publications, (2 8,99502) 659-0670; 9 12,0099 fax publication 13,41010 21,121 orders to (202) 775-6312. The analysis of the relationship between account balances 28 and salary is include 26 d in the Appe 25ndix (Figures Engelhardt, Distribution of generally p Gary resen refl 45 V., and ted do Participa ecting the strong es no Anil Kumar. “Em t influ nts’ Com ence pperformance of th p any Stoc articip ploy an k ts. Alloca er M On av ations by tching and 4 erag e equit e, p Age y art m icip ........................................................... a 01(k) Savin rkets relative to fixed-incom ants have 10 g:.4 Evidence fro distinct optiom ns the e bu t, 7 on average, Hol den and Va nDerhei (September 2003). Results for ear lier years are available in earlier issues 25of bot h EBRI age groups of 50s participants. 44 • 45,152 employer-sponsored 401(k) plans, holding 401(k) perf ormplans) and 15, ance of those hol 047 din,3 gs 58 participant . Iwry (Septemsb (about 35 er 2003) disc pe usses c rcent of 401 ompany (k) plan parti stock and dive cipants; Figur rsification e 1). >2–5 11,836 14,071 16,161 16,492 24,621 Subscriptions to EBRI Issue Briefs are included as part of EBRI membership, or as part of a year-end 2003, the S&P 500 total retur participants’ account balances, asset >$30,000–$40,000 n index fell a allobout cations, and current results. 20 percent, while the Russell 3000 total A18, A19, and A20) available through ICI’s Web site. Results for year-end 20 Figure 4 23 23 03 are essentiall 23 y similar to choose only 2.5 (Holden and VanDerhei, May 2001). In addition, the preliminary analysis found that 401(k) Health and Retirement Study Samwick, Andrew A., and Jonathan Ski Distribution of Issu ____ e Brief ___ Participa _. “ anA d ppendix: E ICI Persp n .” ts’ CRR W Equ ective ity Fund A BRI/ICI 401(k) Accu o. An nner. “H rking Paper app llocati eow Will 401( ndix of ad ons by A . No. 2004-18. d m ition u glation Projectio ek) P ................................................................. al in ension Plans Affect Retirement fo Chestnut Hill, MA: Center for rmation fo n Model.” r year-end ICI Perspecti 2003 is availab 7 ve. le thro Vol. 8, ugh securities. Bibliography >5–10Percentage of Ac 18,519 count Balance Invested in Compan 20,184 21,572 20,895y Stock 29,689 considerations in a legislative context. Utkus and Waggoner (October 2003) study the role of company stock in 40 Most of the plans in the database ar • $776.0 billi$199 annual sub on in assets. e small, mse cription asured to by EBR the num I Notes b and er of plan participants or by EBRI Issue Briefs. Individual cop total ies are available • The average Tenure account balance am (years) ong participants who consistently held accounts since 1999 return index was down about 16 percent. However, >$40,000–$50,000 the change in 22 a participant’s account balance is 20 20 earlier years’ results. It is importan 60st that everyone who considers these and other emerging issues understand that Account Ba particip lances ants are no ............................................................................................................... 1996 t naïve—th1997 at is, when g 1998 iven “n” op1999 tions they do 2000 not divide t 2001 hei ........................... r assets am 2002 ong al 8 l “n2003 .” ICI’s 30s Web site at www.ici. Allorg/perspect 36,295 ive/index 38,021 .html 39,083 36,740 50,937 Retire Income?” ment R The American Economic Review no. 3A (Investm esear Ave ch at Boston College, rage Ass ent Co et Alloca mpany tion May In . Vol. 94, of 401 stitute, Novem 2004. (k) No. 1 (March 200 Accounts, by Participan ber 2002)—Appendix. 4): 329–343. t Age, 2003 Age 26 401(k) plans f Distribution of Participants’ Comp rom both the plan sponsors’ and participants any Stock Allocations, by Age ’ perspectives, as do Brown, Liang, and Weisbenner $80,000 with prepayment for $25 each (for printed copies) or for $7.50 (as an e-mailed electronic file) • Other asset allocation patterns do not seem to have been affected by the strong stock market plan assets. Orders/ increased 29.1 percent in 2003 and 17.1 Forty -four percent of the plans in the da 0–2 percent tabase have 2 altogether since 1999. While ave 6 5 3 5 or fewer participants, and rage account >$50,000–$60,000 0–2 12,657 16,727 20,211 21,305 32,291 19 18 18 the sum of three factors: ne 401(k) Indeed, less than plan participants retiring to 1 w contributions by percent of participan da the ts y ha follo participant and/or ve not wed a “1 had /n a full career’s exposure to ” asset allo the em catio ploy n strateg er; total invest y. 401(k) plans. ment 38 Relationshi p of Age and Tenure to Account Balances ............................................................................. 8 Cohort Zero 1–10% >10–20% >20–30% >30–40% >40–50% >50–60% >60–70% >70–80% >80–90% >90–100% (M Fo arc r st h 20 ati0 st4 ic o s i r A ndi pri cat l 2 in 0g t 04h ). e Eve highe n a by r npr calling EBRI or from d M ope acphe nsi (pe tyrrs of cent of accou on wi (N thove drawww. w ma bler 20 s am nebri. t balan ong 0o3 rg. ) fi part ces) Change of Address: nd t ich iat pant rel sa itn iv te t hei or 6 ot EB 0 he s, RI, 2121 K Street, NW, Suite r st see oc Hol k hd oe ld ni a ngs nd, >2–5 22,738 25,158 27,121 26,504 38,237 Agnew, Julie, and Pierluigi Balduzzi. “Large, S Participants’ allocations to company stock rem ma all, I ined in line with pr nternational: Equity evious Portfolio Choices in a years. About half (or 5 33 percent ha performance. ve 26 to The 200 103 EBRI/ICI database covers app 0 participants. In contrast, >2–5 >$60,000–$70,000 only 4 percent o roxim 15 13 13 atelyf 3 the plans have m 5 percent of the universe of 401(k) ore than 1,000 plan balances increased in 2003 across all participant 16 age and tenure gr 16 oups, balances for some older 17 Changes i n Account Balances................................................................................................................... 8 return on account Therefore, accurately For exbalances, which depen ample, the S&P analy 500 toz ta ing what these acc d l r s on th eturn ie ndex performance of financial was uounts will provide i p 28.7 percent in 2m 003 a nrk retirem , af ets and on the ter faent i lling n 22.1 come requires percent in 2002, >5–10 41,687 42,496 42,874 39,522 54,277 600, Washington, DC 20037, (202) 659-0670; fax number, (202) 775-6312; e-mail: Engen, Eric S&P 500 Ind ____ M., William ex. Ne ___ w York, NY: Standard & Poor’ _. “T G. Gale, and Cori E. Uccel he Impact of Employer-Sel s. lo. “Effects of Stock Market Fluctuations on the ected Investment Options on 401(k) Plan Participants’ V com anD pany er h st ei ( oc N k o i vn ecrease m ber 20 s bot 02—Ap h riskp an end d ix) ret .u rn in defi ned contri bution retir ement plans. Choi, Laibso n, Madri an, Large 401(k) 22 Plan.” CRR Working Paper. No. 2004-14. Chestnut Hill, MA: Center for Retirement 7.3 million) of the 401(k) plan participants in the 2003 EBRI/ICI database are in plans that offer >5–10 24 23 22 8,9 participants. However, par subscriptions 4 Younger participants sti participants, 10 percent of ticipants and asset >$70,000–$80,000 >10–20ll tended to plans, and 41 61,701 s are c hold a higher portion oncentrated in large plans. For exa 61,707 percent of 401(k) plan assets. 16 60,692 14 of their 55,040 accounts in equit 15 73,424 mple, 77 per- y participants had not GICs are insurance c yoem t recovered from pany products that guara the impa ntee a s ct of the three-y pecific rate of ear bear return on m t ah rket i e invn ested equities. For capital over the Plan Loa 1n 1s.9 p ..................................................................................................................... ercent in 2001, and 9.1 percent in 2000 (see Ibbotson Associates, 2004) ................................ . The Russell 3000 to 9 tal return allocation of assets in the individual’s account; and withdrawals, borrowing, and loan repayments. 20s reliance on 42.1% 7.8% models that predict possible 7.9% 7.9% 6.5% Publications Subscriptions@ebr outcom6.3% 5.2% 3.2% i.org. es for workers at future projected retire Membership Information: 2.2% 1.4% Inquiries regm arding EBRI ent dates. 9.4% a and Metrick (January 2004) find that participants allocated more of their contributions to company stock in Adequacy Scholz, John 39 of Asset Karl, Ananth Seshadri, and Surachai Retire Allocat ment Wealth Accu ions: Prelimin m ary ula Findings tion.” CRR W Khitatrakun. “Are Americans .” Working Paper prepared for The Center for Pension and orking Paper. No. 2004-16. Chestnut Hill, Saving ‘Optimally’ GICs and co Rese mp 40s arch at B any stock as an investment option. oston College All , May 68,422 2004. Am 69,024 ong these pa 68,369 rticipants, about 57 percent held 20 percent 63,052 82,999 >10–20 >$80,000–$90,000 27 28 27 10 See “Availabil ity and Use of Plan Loans by Plan Size” in t14 he Appendix for explana 13 tion of EBRI/ICI data on 14 cent of participants are in plans with m Characteristics exam life of the asset ple, for participants in their 50s wi s and older participants tended to invest of Pa contract. rticipants with o Oru ets than tanding Loa 1,000 th m participants, and these same plans account f nso ......................................................................... rem than 30 ore in fixed-incom years of job tenure (who e assets. had an account o ... r 9 $40,000 index increased about 3 membership and/or contributions to EBRI-ERF 1.1 percent in 2003, after declining about 21 should be directed to EBRI President/ASEC .5 percent in 2002, 11.5 percent in 2001, For m 30s any participants, diversification of asset Most of these studies find 35.2 10.8 9.5 8.7 7.1 generally s a favorabl nd ongoing contributions e results 6.2 5.0 3.4 for 401(k) plan participants. helped to tem2.5 1.9 per the Some also 9.7 warn, light of recent high past returns, but th 0–2 at high past 15,765 returns le20,231 d to shifts of t 23,922 heir acco 25,146 unt balances a 36,922 way from MA: Center f for RetiremRetirem eno t?” r Retire NBER Working Paper ent Research (CPR ment Research at R) Current Pension Poli . Boston College, May No. 10260. Cambridge, MA: National Bureau of Econom 2004. cy Issues Conference, at Miami Univer ic sity, Age Equity Balanced Bond Money Other Stable Company plan loans (Figu or less of their account balances in co re A21). In add>20–30 itio >$90,000 to $100,000 n, for the analysis of lo mpany an activ stock, i ity b25 27 25 n ycluding about plan size, see the Ap 35 percent who held pendix (Figures none Chairman Dallas Salisbury at the 13 above address, ( 12202) 659-0670; 13 e-mail: salisbury@ebri.org 85 percent of Avera an ge L d 7.5 p all plan assets oThe EBRI/IC an Bala ercennces t in. 2 .......................................................................................................... 000 I data are unique because they . cover a wide variety of plan record keepers and, .................. 9 4 since 1999), t The mix of investment options he average account balance was s >2–5 27,329 offered b30,245 y a p till down 9.3 percent at y lan, p 32,419 articularly 31,856 the inclusion ear-end 2003 com 44,636of company pared 40s 32.8 13.2 9.7 8.4 7.0 6.0 4.9 3.4 2.5 2.0 10.0 i com mpact of the equit pany stoc however, that many Agnew, Julie, and Lisa R. Szy k and in yt m o ot arket her equi s on their 401(k) acc worker ty invests need to be educated mek nt m s. B an. “A ro ount balances. All t wn, L sset Alloca iang, an about d tio Wei n and Information Overload: The Influe the im so ben ld, from ner portan (M y arear-end 1999 to ch ce of participating in t 2004 or April 20 year- 04) he pl nce of an, 23 Research, Jan Oxford, OH, June 8–9, uary 2004. 2001: Draft, May 2001. b >$100,000 >5–10 51,782 53,183 53,582 49,849 66,743 A22 and A23), available throug>30 h ICI’s Web site. 77 13 17 17 7 Cohort Bibliogra (Figure 6). O p Ot hyFund he ................................................................................................................... r sts ableFund v n the other alus e fundsFund i hand, about 13 ncls ude 19 19 syFund nt 19 hets 19icValue percent GICFunds s, whad m hich cStock onsi ore than 80 st of a Other popercent of their account balances rtfoli............................... o of Unkno fixed-iwn ncome securi 9Total ti es therefore, a wide range of plan sizes offering a variety of investment alternatives. In addition, the with y stock or GICs and other stable value pro ear-end 1999. ducts, significantly affects the asset allocation 50s 32.3 14.8 9.4 7.8 6.4 18 5.6 4.5 3.3 2.5 2.0 11.4 end 200 find that 3, t firm hs m e average account balance am atching employee contributions ong the with co consistent group mpany stock tend of participant to be lower riss k increased firms (as measured making contri Information Display butions earl , Asset Choice and >10–20 y in one 94,765 ’s career (t Investor Expe 93,892 o take adv 91,511 rience.” antage of com CRR Working 82,733 pounding), 107,481 Paper contributi . No. 2004- ng 15. 6 17 ____ Editorial B ____. “L oarifetim d: Dallas L. Salisbury, publisher; Steve Blakely, e Earnings, Social Security Be editor nefits, and the Adequacy . Any views expressed in th is p of R ublicati etirement Wealth on and those of the authors should “wrapped” with a guarantee (typically by an in 16su 16rance company or a bank) to provide benefit p 16 ayments 16 40 Endnotes invested in com “Funds” i ....................................................................................................................... nclude m pany utual funds, bank stock. collective trusts, life insurance separate accounts, a ............................... nd any 13 poole d Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan 20s database cove 51.3% 11.8% rs a broad range of 401(k) >20–309.0% 5.8% 97,916 6.1% 96,500 plans, from14.4% 93,362 very large corporations to s 85,2490.8% 109,7870.8% mall business 100% es. Hurst, Erik. “Grasshoppers, Ants, and Pre-Retirement Wealth: A Test of Permanent Income.” NBER by See th ba nk60s rup e App tcy risk35.4 eof participant ndix and (F15.7 i st gur oc es k p A2 sr in a plan. 8.1 6.5 5.1 ice 4 and volatilit A25, availab y). They also le thro fiugh I nd th4.5 3.7 2.9 C at, g I’s iW vee nb the h site)i for storic tend loan activity b ency of equ2.2 1.9 y salar ities to y. 14.0 17.1 $0 percent, rising from Chestnut Hill, MA: Center for Retirem consistently o $65,5 ver time, und 72 at year-end 199 erstanding risk and return 9 to ent Research at $76,809 at ayear-end 2003 ssociated wit Boston College, May h different invest (Figure 10). 2004. ment strategies, 14 not be ascribed to the officers, trustees, members, or other sponsors of the Employee Benefit Research Institute, the EBRI Education and Asset Allocation Account Size Accu Shackleton, mulatioRobert. “Baby Boom n.” CRR Working Paper ers’ Retiremen . No. 2004-10. t Prospects: An Overview.” Chestnut Hill, MA: Center for Retirem A CBO Study. ent 13 13 according to the plan at book value. invest 50s ment product Data Collection Project. primari Allly invest105,485 ed in the securi 102,468 ty indicat 99,125 ed (see page 90,640 6 for defi 112,854 nitions of the investment 12 30s 54.2 9.8 8.1 4.2 5.9 16.0 11 1.1 0.8 100 outp Resear e rformAll ch Fund, fix Working Paper 34.7 ed or -i their nco12.6 m staffs. e secu Nothin . No. 1009 rities, a co 9.2 8.1 6.6 g herein is to be co m 8.p Cam any sto b nstr ridge, MA: National Bur ck ued as an attem matching5.9 4.7 3.3 ppo t to aid or licy gen hi erally con nder eau of Econom the adoption tributes of a pn2.4 1.9 o y ic Research, November s pending le itively to gislat ion, regulation,10.6 41 • On average, at year-end 2003, 45 percent of 401(k) plan participants’ 11 assets were invested in 1111 A sense of the relationship am and engaging0–2 >2–5 in responsibl ong the three factors e loan and withdrawal activit >5–10 can be seen in t>10–20 y. h Som e change in e st>20–30 udies have exa average account m>30 ined retirement <$10,000 0–2 16,728 21,569 12 11 12 25,463 26,993 38,743 The • Participant median loan bal s’ allocations ance outstandi to com ng was pany $3,8 st 32 ock remained in li at year-end 2003. ne with previous 10 years. Rese Washington, On average, participants in the 2003 EBRI/ICI arch at B DC: The Congress of the United States, Congressional Budget Office, Novem oston College, April 2004. database had 67 percent of their plan balances ber 2003. categories used in this paper). Unless otherwise indicated, all asset allocation averages are expressed as a 9 9 or interpretative Bloomberg Data rule, or as legal, acco . New York, NY: Bloom unting, actuarial, or other such prof berg, L.P. essional advice. emplo40s yee retire Distribution of Participants’ E 48.6 ment wealth9.8 . 8.6 4.3 quity Fund Allocations, by Age 9.3 17.5 1.3 0.7 100 8 8 8 8 8 >2–5 28,626 32,216 34,690 8 34,478 47,245 equit 24 2003y . funds, 16 percent in company stock, 9 percent in balanced funds, 10 percent in bond funds, balances among participants 7 grouped by age and tenure. In our consistent group 7 of 4.5 million preparedness mo$10,000–$2 re generall0,00 y, including 0 not onl y incom26 24 24 e from individual account balances but also Some record keepers supplying data were Years of T unable t enure o provide complete asset allocation detail on certain invested directly or indirectly in equity 4 do About half llar-weighted of the partici average. p s ants in the 2 ecurities—th 003 EBRI/ICI database ar e sum of equity funds, company 6 6 e in plans that stock, a 6 offer nd the >5–10 56,686 59,182 59,844 56,373 73,405 Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data 5 5 Collection Project. 5 5 5 5 5 EBRI Issue Brief Am is rong individual participants, the allocation of egistered in the U.S. Patent and Trademark Office. ISSN: 0887 account balances to equit -137X/90 0887 -13 127X/90 $ .50+. y f 5unds varies widel 0 y 50s 42.0 9.6 10.2 4.8 14.3 16.9 1.5 0.6 100 13 percent in guaranteed investm 27 ent contracts (GICs) and other stable value fun 4 4 ds, and 5 percent Figures TM participants, participants who we Brown, Jeffrey R., Nellie Liang, from defined benefit pension plans and >$20,000–$30, re younger or 000 and Scott Weisbenner. “401(k) Ma had social insurance program fewer y ears of tenure experienced the largest 26 26 25 s. t ching Contributions in Company a pooled asset classes for one >10–20 or more of t 107,497 heir clients. Only 107,187 p 104,649 lans in wh95,934 ich at least 90 120,389 percent of all plan assets 14 equity portion of balanced company stoc funds. k as an investment option. The bulk of equity holdings by 401(k) plan participants was in Even, Willia Thaler, Richa m rd H., and Shlom E., and David Macpherson. o Benartzi. “Save More Tom “Company Stock in orrow Pension Funds.” : Using Behavioral Econo National Tax mics to Includes the 7.3 million participants in plans with company stock. C hoi, Laibson, and Madrian (May 2004 or June 2004) show that a 401(k) plan’s design has an important around the average of 45 percent for all participants in the 2003 EBRI/ICI database. Indeed, about Sourc60s e: Tabulat 35.1 ions from the E8.5 BRI/ICI P 12.5 >20–30 articipant-Direc 153,567 5.6 ted Retirem22.1 147,817 ent Plan Dat 140,716 14.0 a Collection P 127,415 1.7 roject. 156,6840.6 100 7 Ibbotson Associates. SBBI (Stocks, Bonds, Bills, and Inflation) 2004 Yearbook: Market Results for in money funds. b >$30,000–$40,000 25 26 24 increases in average accou Stock: Costs and Benefits for Firm coul Perhaps beca d be identified nuse of the continued fallout from t bala werences between y included in ths e and Workers.” fi ear-end 1999 and nal EBRI/IC the collapse of Enron I dat FEDS W abase. year-end 2003. For exam orking Paper and trou . No. 2 bles at other high- ple, the 004-23. The reported account balance represents retirement assets in the 401(k) plan at the participant’s current Journal equit Increas y Ro funds, e E . Vol. w pe mrcentag p LVII, No. 2, l which accounted for 45 oyee Saving.” es may not ad Part 1. Washington Journal of d to 100 percent percent of th Political Economy because of roundin , DCeir account balances at y : National Tax Association, June 2004 . Vol. 1 g. 12, No. 1, Par ear-end 2003, up from t 2, (Februar : 29 y 200 9–313 4): . a 4 More than half of the pa >30 rticipants in t 161,537 hese plans held 20 146,699 137,512 percent or less of their account 122,438 146,509 effect onDid pa you rticip re atio adn this as a and contribu pass- tion alo rates, asset ng? Stay ahea allocation d of em of account ba ployee benefit lances, a issues nw d cas ith your h distributions own subscr at iption to EBRI SampAll le of 4.21 percent of 5 m 44.6 illion participant participants had m 9.5 s with ac c9.8 ount balanc o4.7 r es e than 80 per at the end of 12.9 eac cent of h year f 16.4 their account balances invested in equit rom 1999 t1.5 hrough 2003. 0.6 100 y 1926–2003. Chicago, IL: Ibbotson Associates, 2004. >$40,000–$50, 28 000 24 26 23 average account balance o Figure 1, EBRI/ICI Database: 401(k) Pl f participants in thei an Characteri r 20s ro sse about 138 tics, by Num.b 7er of Plan Participants, 2003….17 percent between the end of profile public com Washington, DC: Board of Governors of panies, analyzing the desirability the Federal Reserve Sy and impact of co stemm , March 2004; also pany stock as part of 401(k) NBER empl 60s oyer. Retirement savi All ngs held i 139,317 n plans at pre 129,788 vious em 122,377 ployers or110,679 rolled over i 127,130 nto individual retirement S164–S 40 percent in retirem b ent Issue Brief 187 or followi . 2002 balances in c for (Figure ng onl a job change. y $4 o2). 9/ myear electro pany At stock. year-end 2003, nically e-maile 16 pe d to yo rcent of 401( u or $99/year k) plan account balances were printed and mailed. For more info brmation 25 Data are f rom funds, while Figure 10. 32 percent he ld no eq uity funds at all (F igure 7). The percentage of participants holdin 13 g Equity Funds Balanced Funds 0–2 Com 17,553 pany Stock 21,240 Bond Funds 24,314 25,543 Money Funds 34,281 GICs and Other For a comparison>$50,000–$60, of the distri0 but00 ion of plans, part icipan24 25 23 ts, and assets in the EBRI/ICI database with the • Loan activity among 401(k) plan participants in 2003 was essentially unchanged from earlier 1999 and the Working Paper accounts plan participants’ end of 2 (IR 003 ( As) a . No. 1041 Frigure 9). T e accounts not included in t 9.continues h Cam is reflects b hridge, MA: National Bureau of Econom is ato nalysis. the greater relativ be a focus of recent resear e importance ch. of contrib In addition, recent resear ic Research, April 20 utions 04. ch about subscriptions, visit our Web site at www.ebri.org or complete the form below and return it to EBRI. invested in co c mpany stock and 9 percent were in balanced funds. I 33 nvestment performance likely ____ Figure 2, ____. “ 401(k) Plan Average Determinants and Effects of Em Asset Allocation, ploy 1996–2003 er Matching Co ............................................................. ntributions in 401(k) Plans.” 17 4 About 35 percent of the participants in these plans held no com >2–5 26,808 29,956 31,690 31,301 pany stock. 40,306 Source: Age and t Tabulati enure c ons from the EB ohorts are based on part RI/ICI Parti ic ciipant pant age and t -Directed Retire enure at ment Plan Data year-end 1999. Collection Project. no equity funds tends to increase with age. For example, about 14 28 percent of participants in their universe of 401(k) plans, see the Appendix (Figure A1) available through ICI’s Web site at Stable Value Funds 15 Investment Comp>$60,000–$70, any Institute. “Mutual 000 Funds and t 23 25 22 he U.S. Retirement Market in 2003.” ICI years. Eighteen percent of eligible participants had loans outstanding at the end of 2003 and only than other factors because t has also focused on the importance of plan design he account balances of par >5–10 55,405 ticipants in their 20s tend t 57,202 —particularly 56,858 53,352 theo role of default or “autopil be small com 64,952 pared ot” a Agnew and Szykman (May 2004) find that plan design, especially the selection of default options, is Working Paper Utkus, Steph explains the bulk of the changes in 401(k) plan en P., and Jason Waggo . Tallahassee, FL: Florida ner. State University Employer and Employee Attitudes Tow participants’ Investment C , Decem asset allocations ove ategory ber 2003. ar time. Much of the rd Company Stock Name Guaranteed in 4vestment About 13 contpercent of the participants in th racts. ese plans held m ore than 80 percent of their Butrica, Barb 8 ara, and Cori Uccello. How Will Boomers Fare at Retirement? Washington, DC: AARP 15 16 17 Figure 3, Domestic Stock Market I ww 30s had n w.ici.or o g/ eq peuit rspect y fu iv nd i >10–20 e/indexes, Decem nde nvestments, com x.html 103,567 . ber 1996–December 2003 pared with 102,090 41 percent of 98,609 90,483 .................................... participants in their 60s. H 105,863 18 owever, Fundamentals. Vol. 13, N >$70,000–$80, o. 2 (Investment Com 000 pany26 24 22 Institute, June 2004). For a projection of 401(k) accumulations based on 401(k) participant behaviors observed in the EBRI/ICI 12 percent of participants with account balances of less than $10,000 had loans outstanding. with t b ypical contribut options, the n ions. u mber of investment options, and employer matching contributions — and important, as it influences participants’ choices. Utkus and Young (April 2004) outline a new approach of an in 40 m Sour Row percent ovement in the largest com 1(k) Pla ce: Tabulations ag nes ma s. Valley fry not ad om the EBR Fo d t rge, PA: The Vanguard Group, T o 100 percent b ponent, equity fun I/ICI Par >20–30 ticipant- ecau Dir 149,335 se of roundin ected R ds, ten etire 140,873 d ment Pl g. s to reflect overall equit han D e Vanguard Center for Retirem 132,108 ata C ollection Pr 118,996 ojec y market prices, t. 136,164 ent Organization account balances in company stock. Public Polic y Institute, May 2004. in aggregate, about 53 percent of participants w 18 ith no equity fund balances had exposure to the stock >$80,000–$90,000 23 24 22 Particip ant-Directed Retirement Plan Data Collection Project, see Holden and VanDerhei (November 2002). Figure 4, Ave Am rage Asset Allocation of 401(k ong participants with lo >30 ans outstandi 210,886 ) Account ng at the 190,179 s, by Participant Age, 2003 end 176,568 of 2003, t 157,846 he level of the un ........................... 178,181 paid balance 18 “aut a In contrast, th omatic” or “aut participant financial e average account opilot” 401(k) pl education and anbalance of ol that can be use learning. der parti d to improve c Other recent studies have reported o ipants with longer tenures had not participation and investment deci si yons en t defined of 26 ________. “T Research, October 20 which generally rose from he Causes an 03. d Consequences of Co 1996 through 1999, declin mpany ed from Stock Hol the b 34 e dginning ings in Pension of 2000 t Funds.” hrough e Working arly Minor investment options are not shown. Add ress a For the distribution of plans, participants, and assets by plan assets, see the Appendix (Figure A2) available market through company stock or balanced funds. 19 All >$90,000–$10 All 0,000 65,572 65,306 22 23 21 64,440 59,510 76,809 ________. Quarterly Supplemental Data. represented 13 percent of the account balance, net of the unpaid loan balance, down slightly from recovered from indi b viduals who a the im re reluct pact ant tof the bear market. o make all of the deci For exam sions requi ple, the average account balance of red to participate in a 401(k) plan. Thaler and contribution plan participants’ account balances, asset allocations, and current results. Paper 2003 Figure 5, Ave Guarant , and t . Tallahassee, FL: Florida State University, Novem eed i hen rose again o nv rage Asset Allocation of 401(k) Account estment contracv ts er the rem . ainder of 2003 (Figure 3). s, by ber 2003. Investment Options, 2003..................... 19 through ICI’s Web site. City/State Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. /ZIP >$100,000 21 19 17 recent years. a Sample of 4.5 million participants with account balances at the end of each year from 1999 through 2003. Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 or Fax to: (202) 775-6312 b Age and tenure cohorts are based on participant age and tenure at year-end 1999. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan 1 12 10 16 14 6 8 4 11 15 13 5 3 9 7 EBRI EBRI EBRI EBRI EBRI EBRI EBRI EBRI EBRI Iss Iss Iss Iss Iss Iss Iss Iss u u u u u u uIss e B e B e B e B e B e B e B ue B u EBRI EBRI EBRI EBRI EBRI EBRI EBRI r r r r r r r e B ief No. ief No. ief No. ief No. ief No. ief No. ief No. rief No. r© 2004, Emplo ief No. Iss Iss Iss Iss Iss Iss Issu u u u u u u 272 272 272 272 272 272 272 e B e B e B e B e B e B e B 272 272 r r r r r r r • • • • • • •ief No. ief No. ief No. ief No. ief No. ief No. ief No. •Au Au Au Au Au Au Au •Au gu gu gu gu gu gu gu Au ygu ee B st st st st st st st 272 272 272 272 272 272 272 gu st 200 200 200 200 200 200 200 st 20 enefit 200 • • • • • • • 4 4 4 4 4 4 4 Au Au Au Au Au Au Au 04 4 • • • • • • • Research Institute www.eb www.eb www.eb www.eb www.eb www.eb www.eb gu gu gu gu gu gu gu • www.eb •st st st st st st st © 200 200 200 200 200 200 200 200ri.org ri.org ri.org ri.org ri.org ri.org ri.org 4 4 4 4 4 4 4 4 EBRI ri.org • • • • • • • www.eb www.eb www.eb www.eb www.eb www.eb www.eb - • Educ www.eb ri.org ri.org ri.org ri.org ri.org ri.org ri.org ation and Re ri.org search Fund. All rights reserve2 d . EBRI Issue Brief No. 272 · August 2004 · www.ebri.org EBRI Issue Brief No. 272 · August 2004 · www.ebri.org EBRI Issue Brief No. 272 · August 2004 · www.ebri.org EBRI Issue Brief No. 272 · August 2004 · www.ebri.org EBRI Issue Brief No. 272 · August 2004 · www.ebri.org EBRI Issue Brief No. 272 · August 2004 · www.ebri.org Data Collection Project. 18 17 19 20 21 22 23

Volume 272

Pages 24

EBRI Issue Brief

Sarah Holden

Jack VanDerhei

Health