This report updates research on 401(k) plan participant activity through year-end 2004, using the EBRI/ICI 401(k) database -- the largest database of its kind and an ongoing collaborative effort between the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI). Among its key findings: Consistent participation in 401(k) plans remains essential to successful saving; equity investing remains popular in 401(k) plans; investment preferences are shifting to simpler options; loans are widely available, but rarely taken.
Defined contribution (DC) plans are one of the primary means by which Americans save for retirement, and 401(k) plans are the most common type of DC plan. In an ongoing collaborative effort, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) collect annual data on millions of 401(k) plan participants to present an accurate portrayal of the behavior of 401(k) plan participants.
This report updates EBRI and ICI’s research of 401(k) plan participant activity through year-end 2004, and notes several key findings:
• Consistent participation in 401(k) plans remains essential to successful saving: Consistent participation has had a significant impact on individuals’ ability to accumulate sizeable gains in 401(k) account balances since 1999. By year-end 2004, the average account balance among 401(k) participants who had held accounts since at least 1999 increased by 36 percent, despite experiencing one of the worst bear markets for stocks since the Great Depression. Comparing a consistent sample of participants such as this provides the most meaningful analysis of 401(k) trends, as opposed to year-to-year “snapshots” that change as older, high-account workers leave the 401(k) system and younger, low-account workers enter. Notably, older and longer-tenured participants have higher-than-average balances, and younger and shorter-tenured participants have smaller-than-average balances.
• Equity investing remains popular in 401(k) plans: The bulk of 401(k) participants’ assets remained in equity securities at year-end 2004. On average, 67 percent of participants’ assets are invested in equity securities through equity funds, the equity portion of balanced funds, and company stock.
• Investment preferences are shifting to simpler options: Lifestyle and lifecycle funds have increased in popularity in recent years among both plan sponsors and plan participants due to increasing concern that many participants require investment guidance and/or simpler investment choices. For example, recently hired 401(k) plan participants in their 20s currently hold a higher percentage of their 401(k) accounts in balanced funds—which include lifestyle and lifecycle funds—than their peers did in 1998.
• Loans are widely available, but rarely taken: Although research indicates that permitting loans increases both participation and contribution rates in 401(k) plans, concern exists that individuals will undo those benefits by taking the money out prior to retirement. However, loan activity among 401(k) plan participants continues to be limited: In 2004, 19 percent of participants in plans that offered loans have loans outstanding. On average, among participants with loans, the loan represents 13 percent of the remaining account balance at year-end 2004.
Figure 7 Figure 1 401(k) Plan Assets Concentrated in Equity Funds Figure 9 401(k) Account Balances Increase for Second Consecutive Year 1 Figure 11 401(k) Plan Average Asset Allocation, Percentage of Total Assets, Figure 5 Selected Years 1 More Than a Third of Participants Forgo Holding Company Stock Average Account Balances Among 401(k) Participants More 401(k) Plans Offering Lifestyle, Lifecycle Funds Figure 13 More Than Half of Participants With Small Accounts Are New to Their Jobs 2 Asset Allocation Distribution of Participant Account Balance to Company Stock Present From Year-End 1999 Through Year-End 2004 1 2 Percentage of Plans Offering Lifestyle and Lifecyle Funds, 1996–2004 1 2 Percentage of Participants Few Particip With a 401(k) Account Balance Less Than $10,000, by Tenure, ants Take Loans From Their 401(k) Plans 2004 Figure 3 in 401(k) Plans With Company Stock, Percentage of Participants, 2004 onl Utkus, Stephen P., and Gary y about . How Well Are Employees Saving . “401(k) 20 percent of t Plan Participants: Characteris heir accounts in fixed-inco R. Mottola. Catch-Up Contributi and In vesting tics, Contribut me securities in 401(k) Plans ( ons i ions, and Account Activit n (bond f 2004: unds, 2005 Hewitt Universe Pla n Sponsor and Participant GICs and other stable value y.” ICI Resear ch Sarah Holden is senior econom Participation Through Bear and Bu ist, Research Department at ll Markets Boosts Account Grow the Investment Company th Institute (ICI) and Jack (Median: 4 Years) 17 7 53% Percentage of Eligible 401(k) Participants With Loans, by Participant Age, 2004 Average Account Balances for Most Age Groups Figure 4 For ex Theam S&P ple, Hewitt Asso 500 total return index inc ciates (2005b) repo reased 42.7 rts th perce at 11n .4 t between percent oDecem f particip ber 2002 ants in th anei d r syste Decem m b er mad 2004. T e bothh a tran e Russell sfer Benchmarks) Adoptio funds, and m Series n. Valley (Invest one . Lincolnshire, y ment Co F funds com orge, P m Ap IL: Hewitt Associates, LLC, 2005b. : The Vanguard Center for Retirem any bined), while those in Institute, Spring 2000). their 60s hold 38 percent of t ent Research and The Vangu heir assets in ard Group, A these pril In any given year, three factors contribute to changes in a participant’s account balance: VanDerhei, Temple University, is research director of the Employee Benefit Research Institute (EBRI) $91,042 EBRI Issue Brief 19 >30 Years Increase From 1999 Levels and an inv 2000 to etal stmen return ind t chang ex, e in wh 20 ich 04 ; Fi represen delity In ts the sm vestmal en ler o ts (2f00 th4) e lfind arges co 13 rp po errcen ations, t of i DC ncrea plse an d p 74 articip .2 pean rce ts ntin ove their system r the same 2005 invest . ments. Allocations to company stock continue to be very similar across age groups. Participants in Fellow’s program. Special thanks to Luis Alonso, r >20–30 Years esearch analyst at EBRI, who managed the database. In • New contributions by the participant and/or the em Over a Third of 401(k) Participants Are in ployer. >80 Percent Holden, Sarah, and Jack VanDerhei. “T Lusardi, Annamaria, and Olivia S. Mitchell. “Financial Issue he Influence of Autom Literacy atic Enrollm and Planning: Brief ent, Catch-Up, and IRA Implications for Retirement 46% Averag About the EBRI/ICI Database e Account Balances Among 401(k) Participants 39.4 mad peri e ex od ch an and ges in had su 20 rpas 03; an sedd Th its p e V eak ang of earl uardy Cen 200ter 0 (Fi for g Ret ure ir 2) e. m ent Research (September 2004) saw 14 percent of their 3% their 20s have about 13 percent of their 401(k) plan account balances in company stock, as did participants in addition, thanks to Elizabeth Zacharias a th t ICI who assisted in preparing the grap 1996 hics. 45% 1 2 • 44%Total investment return on account ba Their 20s or 30s or Have Short Tenure lances, which depends on market perfor $78,983 mance and the Contributi Utkus, Stephen P., and Jean A. Young. Wellbeing.” Prepared for the 7 ons on 401(k) Accumulations at Retirement.” Annual Conference Retirement Investor Report of the Retirement Res ICI Perspe Card ctive, for December 2004: Vol. 11, earcNo. 2, and h Consortium EBRI Issue Positive Gains , “Towards a 22% DC plan participants trade i Present From Year-En n 2003. Holden and VanDer d 1999 Through Ye hei (Septemar- ber 2003) a End 2004, nalyze by Age change s in year-end asset 8 5 their 60s, whi le those in their 40s have 15 percent. For statistics indicating the higher propensity of withdrawals among participants in their 60s, see Holden and 11.2 21% 0–2 Years From Rising Equity M Brief Secure Retirement Sy , No. 283 (Investment Com allocation of arkets asset stem” August 11– . Valley s in the individual’ pany For Institute and E ge, PA: The Vanguard Center for Retirem 12, 2s005 account. , Washington mployee Benefit Research No. 285 , DC: August 20 Institute, Jul 0ent Research and The 5. y 2005). allo cations among 5.3 million EBRI/ICI database 401(k) plan participants with account1999 s at the end of each year from 40% Percentage of 401(k) Plan Participants, by Age >60–80 Percent or Tenure, 2004 The EBRI/ICI Participant- 2 Directed Retirement Plan Data Collection Project is the world’s largest >10–20 Years V anDerhei (November 2002—Appendix). This report is being p Age Group ublish ed sim1999 2000 2001 2002 2003 ultaneously as an EBRI Issue Brief and ICI Perspectives2004 33.1% and is available on Again, these averages hide a wide range of individual activity. About half (or 7.8 million) of the 401(k) Vanguard Group, March 2 1999 through 20 $67,016 02. Choi, Lai005. bson, Madrian, and Metrick (July 2004) fin 32.1% d that 401(k) plan participants rarely make $66,649 EBRI Employee Benefit Research Institute Issue Brief (ISSN 0887 -137X) is published monthly by the Employee 19% Benefit repository of information • Withdrawals, borrowing, and loan repayment about individu 5.3 $65,865 al 401(k) pla s. n participa 19% nt accounts. As of Dec. 31, 2004, Mitchell, Olivia S., and St . “401(k) Plan Asset Allocation, Account ephen P. Utkus. “Lessons Balances, and Loan Acti from Behavioral Finance for Retire vity in 2003.” ICI Perspect ment Plan Design.” ive, 9 11 26% 2002 both organizations’ Web sites at www.ebri.org and www.ici.org 30.0% participants in the 2004 EBRI/ICI data chang Resea es after th rch Institut e in e, 2121 K Stree itial point of enro t, NW, Suite 600, llmenbase are in plan t. Inve Washington, D stment Co By Age m s that offer co p Can 20037-189 y Institu6, at $ te (March mp300 per any stoc 20 Zero year or i 01) fi k as an investment option. nd ss th included a at 89 p se pa rcen rt of a t of equity The EBRI/ICI data are based on administrative records from a variety of recordkeepers that cover a wide range of plan 20s $10,410 $13,111 $15,698 $16,472 $25,046 September 2005 $31,844 $60,926 the EBRI/ICI database includes statistical information about: The Vanguard Center for Retirement Resear Vol. 10, No. In Olivia S. 2, and Mitchell and Stephen P. Ut EBRI Issue Brief, No. 272 (Invest kus, eds., ch. HowPen America Saves (A Report on Vanguard ment Co sion Design a mpany Institute a nd Structure: nd Em New Lessons from ployee Defined Benefit members Among 401( hip subs k) plan partic cription. Periodic ipants who ha als postage rate paid in ve had account Washington, DC, and s since at least y 36.7% additional mailing offi ear-end 1999, the average account ces. POSTMASTER: Send 27.6% Am mutsi u ong these participants, 59 percent hold 20 al zes. F fund o s r a m hareh o30s re olde det rs i ailn ed de defis ne c37,514 ri d c ptiont on ri of t buh t39,204 40,333 37,957 52,793 ie ons dat (Median Age: 44 Years) pl percent or abase ans m , see t ade less of their account balances in co h no e re Ap dem pendi ptix. ons or redemption e63,710 xchanges mpany in 19 stock, 98. In 2003 • 16.3 million 401(k) plan participants, in address changes to: EBRI Issue Brief, 2121 K Street, NW, Suite 600, Washington, DC 20037-1896. Copyright 2005 by Employee Contributio Research Institute, August Behavioral Fi n Plans nance 2004) . Oxfor >40–60 Percent . Valley 2004). d, UK: Oxford Universit Forge, PA: The Vanguard Group, y Press, 2004, Septem pp. 3–41. ber 2004. 20 ® ® balance increased 36 percent in the past five years, rising from $67,016 at year-end 1999 to $91,042 at year- addition, Investm e40s nt Company Institu70,092 te (Sprin70,620 70,011 64,643 85,320 g 2000) finds that 81 percent of 401(k) plan h100,106 ouseholds surveyed made includin Note: The electronic version of this 10 g about 37 percent who do not publ h 9.8 o ica ld com tion was created using v pany stock at all (Figure 9). ersion 6.0 of In contrast, about Adobe Acrobat. 11 percent Those Benefit Research Institute. All rights reserved, No. 285. 6 60s For additional detail on account balances, see the Appendix. • 45,783 employer-sponsored 401(k) plans, holding 2004 401(k) Plan Asset Allocation, Account Balances, and 50s 107,495 104,187 100,914 92,441 20s 115,605 129,218 ® ® end 2004 (Figure 1). In 2004 alone, the average account balance among this consistent group of participants no allocation changes in the 12 months preceding the survey (August 1997 through September 1998). have more than 80 percent of their account balances invested in company stock. Furthermore, analysis of the having trouble opening the pdf document will need to upgrade their computer to Adobe Reader 6.0, which Mitchell, Olivia S., Stephe . “Appendix: . Automatic Enrollment: Vangu Additional F n P. Utkus, a igures for the ard Cli nd To ent Experience ngx EBRI/ICI uan (Stella) Yang Participant-Directed Retirement Plan Data . Valley. “Better Plan Forge, PA: The Vanguard Group, Jul s for the Better-Paid: y 21.2% 11 60s 143,161 132,840 125,376 113,627 130,788 136,400 • 12% $926.2 billion in assets. 20.4% increased 15 percent over year-end 2003, due in part to positive equity market returns (Figure 2). 18 For research that examines how 401(k) assets might contribute to retirement income for future retirees, see asset allocation of recently hired partic The Emipants finds that recently ployee Benefit Research Institut hired participants in 2004 are less likely e (EBRI) was founded in 1978. Its mission is to than Collection Project for Year-End 20 2001 can be downl Determinants and Effects of 401(k) . oaded for free at www.adobe.com 03.” Plan ICI Perspe Design.” /products ctiv Wh e, /acrobat/readstep2.htm Vol. 10, N arton Pension Research Council Working Paper, o. 2A (Invest l ment Company Institute, No. Participants in their 20s hold approximately 2 percent of the total assets in the 2004 EBRI/ICI database; participants 7% 19% CHECK OUT EBRI’ 21 S NEW WEB SITE! Loan Activity in 2004 1 11% resu Account balances generall lts from the EBRI/ICI 401(k) Ac y have increased since 1999 contribute to cumul , to encourag ation Projec e, an tid to enhanc on because of net contributi Model p e the developmen ublished in Hons each y ot of sound empl lden and V ear and stock anDerhei (J oyee benefit uly 10% their counterparts in 1998 All to invest in t 67,016 heir em66,649 65,865 60,926 78,983 ployer’s stock. 91,042 August 20 in th 2005 eir 30 –5. P s 04 ho—Appendix). ld hila 13delphia, PA: percent; particip University ants in th eir of Pennsy 40s hold lvania, 34 percen The Wharton t; participan School, ts in their 200 50s h 5. old 38 percent; and 16% 16% 16% The 2004 EB . Automatic RI/ICI database covers approximately 38 percent of the universe of Enrollment: Benefits and Costs of Adoption. Valley Forge, PA: Th401(k) plan e Vanguard Group, programs and sound public policy 15% through objective research and education. EBRI is the only market appreciation since 2002. For example, contributions made toward the end of the bear market and 2005, November 20 14.8% 02, and Nov 50s ember 20 14.3% 02–Appendix). A recent update of the EBRI/ICI 401(k) Accumulation participants in thSource: Tabula eir 60s hold th tione s from remthe ain EBR in 23% g 14 I/ICI Par percen ticipant-Directe t of the to d Retir tal assets. ement Plan Data Collection Project. by Sarah Holden, Investment Company Institute, and Jack VanDerhei, Temple University and Among individual participants, the allocation of account balances to equity funds also varies widely 13% private, nonprofit, nonpartisan, Washington, DC-based organization committed exclusively to Who we are 1 May Munnell, Ali 2participants, 001 . “401(k) . cia H., and Steven A. Sass. Plan Asset Allocation, Account 10 percent of >5–10 Years plans, and “401(k) 44 percent of 401(k) plan Balances, and Loan Acti Plans and Women: A ‘Good New/Bad News’ assets. vity in 2002.” ICI Perspect Stor 12% ive, y.” Just invested in br Projection M oad equit odel exam y m ined arket funds h the impact oafve increased m automatic enrollm ore than 40 ent in11% 401 percent in value, showing (k) plans over an entire career. 11% the benefit of Other recent Sample of 4.0 million participants with account balances at the end of each year from 1999 through 2004. 12.1% 19 10% >20–40 Percent 30s EBRI’ public s W polieb site is easy to use and packed cy research and education on economic security and employee benefit issues. around t EBRI Fellow he average of 46 percent for all participants in the 2004 EBRI/ICI database. Indeed, 21 percent of 10% The tendency o 2 f younger participants to favor equity funds and older participants to favor fixed-income securities 9% Vol. 9, No. the Facts 5, No. 13. Chestnut and EBRI Issue Brief Hill, MA: Center for Retirem , No. 261 (Investment Com ent Research at Boston pany Institute and Em College, January ployee Benefit Research 2005. research studi Age gr es autoup omis base atic en d on roll par mti e cipant ag nt: For ex e at year-e ample, see nd 1999. Hewitt Associates (2005a); PSCA (2005); Choi, Laibson, 8% ongoi ng participation even though, as of year-end 2004, the broad equity market (as measured by the S&P 24% 7% 7% EBRI’s membership includes a cross-section of pension funds; businesses; trade associations; holds up even when accounting for investment options offered by the 401(k) plan sponsor 6% (see Appendix Figure A20). participants have more than 80 percent of their account balances invested in equi 7 ty funds, while about 32 22.6% Institute, Sept Madri The EBRI/ICI data an, and em M ber 2003). etrick (Jul are uni y 2004); que because they co and The Vanguard C ver a wide variety of plan recordkeepers and, enter fo 5% r Retirement Resear 5% ch ( 5% July 2001 and May 2001). 500 total return index) had with useful information! not returned to its mid-2000 peak. labor unions; health 22 care providers and insurers; government org 4% anizations; and service firms. 4% Munnell, Alicia H., Annika Sundén, and Catherine Taylor. “What Determines 401(k) Participation and The mix of investment options, particularly the inclusion of company stock and/or GICs and other stable value funds, percent hold no equity funds at all (Figure 10). However, in aggreg 32% ate, about 53 percent of participants with Additional recent research focuses on behaviors and factors that influence planning for retirement: For example, see 26% therefore, a wide range of plan sizes offering a variety of investment alternatives. In addition, the While these averages provide a broad snapshot, they mask the wide range of 401(k) participant account Table of Contents Defined contribution (DC) plans are one of the primary means by which Americans save for Endnotes o ffered Contributi b. “Can 401(k y a plan ons spo ?”n CRR Working Paper, so )r Accu significan mulations Generate tly affects th No. 2000-12. C e asset allocatio Significant In hn estnut Hill, of th coe m particip e for Future Retirees?” MA: Center for Retirem ants in a plan. ICI Perspe ent Research at ctive, no equity fund balances have exposure to the stock market through company stock and/or balanced funds. Hurst (August 2005); Lusardi and Mitchell (August 2005); Hewitt Associates (July 2005); Utkus and Mottola (April EBRI’s work advances knowledge and understanding of employee benefits and their database covers a broad range of 401(k) plans, from very large corporations to small businesses. 1–20 Percent balances. There tends to be a positive correlation between job tenure and account balance in each of the nine >2–5 Years retirement, and 401(k) plans are the most common type of DC plan. In an ongoing collaborative effort, Vol. 8, No. Boston College, Decem 3, and EBRI Issue Brief ber 2000. , No. 251 (Investment Company Institute and Employee Benefit Research 3 20 2 Look for these special features: 2 2 2005); Utkus and Young (March 2005); Hurd and Rohwedder (February 2 2005); Munnell and Sass (January 2005); importance to the nation’s economy among policymakers, the news media, and the public. It Introduction ....................................................................................................................................3 See Appe Equity Funds ndix Figure A23 Balanced Funds for the asset alloc Company Stock ation distribution of Bond Funds participant accou Money Funds nt balances to coGICs and Other mpany stock by Many observers wonder whether such account balances will be able to provide significant income in years covered by the EBRI/ICI database and among the participants in the consistent group (those with 2 Institute, Novem the Employee Benefit Research Instit ber 2002). ute (EBRI) and the Investment Company Institute (ICI) collect 1 th Hewitt Associates (2005b); Fidedoes this b lity Investmen y conducting ts (2004); and p Mitch ublishing policy re ell and Utkus (200 sear 4); ch, analysis, Ameriks, Nesto and special reports on r, and Utkus 11 Stable Value Funds age. Changes in 401(k) Particip 1999 2000 ants’ Account Balances 2001 ........................................................................ 2002 2003 2004 3 ThProfit Sharin e Employee Ben g/401( efit Research In k) Council of America (PSCA). stitute is a nonprofit, non Investment Category 48 partisan Annual , pubSurvey of Profit Sharing and lic policy research organization,401(k) Plans: which does retirement. However, this question cannot be answered by looking at these aggregate account balances for account balances at the end of each year from at least 1999 through 2004). Given that age and tenure are Lifestyle and Lifecycle 1996 1997 Funds Gain Popularity • EBRI’ emplo 1998y s entire library of research publications starts at the ee benef 1999 its issues; holding educational br 2000 2001 iefings for EBRI memb 2002 2003ers, congressional and 2004 (N annual data on m W ovember 2 hat we do 20s 004); ain llions of 401(k) plan d The V30s anguard Centerparticipants to fo40s r Retirement Researc present an 50sh (Septe accurate portray mber 2004). 60s al of the All Abehavior of ges 21 not lobb Participation T y or take posith ions rough Bea on legirsl aat nd Bull ive proMar posal ket s. s Boosts Account Growth................................................... 4 Reflecting 20 . “Appendix: Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 04 Pla EBRI/ICI 401(k) Accu n Year Experience. Chicago, IL: mulation Projection Mo Profit Sharing/401( del.” ICI Perspe k) Council of America, 2005. ctive, Vol. 8, No. 3A two key reasons. often correlated, there also tends to be a positive correlation between age and account balance. See Appendix Figure A28. At plan federal agen s that offe cy r c so taff, and th mpany ste news ock as an media; invest and sponsoring public opinion survey ment option (but no GICs or stabl s on emplo e value yee Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 1 12 401(k) plan participants. Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. main Web page. Click on EBRI Issue Briefs and EBRI Notes Includes the 7.8 million participants in plans that offer company stock as an investment option. Updated Trends in Account In recent years, various reports have indi Balances, Asset Allocation, cated that lifesty & le and l Loan Activit ifecycle funds y .................................... have become increasingly 4 2 Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. (Investm The 1 R ent Co evenue m p Act any o I f n 1stitute, November 2002—A 978 contained a provision thatppendix) A beca ge Group me Int . ernal Revenue Code §401(k). The law went into th fund s), abou2 t 18 1 percent of the yearbenefit issues. -end 2004 acco EBRI’s Ed unt balan uc ces ation and Re of recently h sear irc eh d F pund articipan (EBRI-ERF) performs ts was invested in co the char mpan itable y , Moreover, the aggregate averages don’ Account balances are based on administrative records and cover the account balance at the 401(k) plan participant's current emp t reveal the wide range in rates of change in participant loyer. Retirement savings s’ account The Inv Source: Profit Sharing/401(k) Council of America, annual surveys . estmen At year-end 2004, 5.9 million, or 36 percent, of participants had account balances of less than $10,000. t Company Institute is the national associatio 32% n of the U.S. investment company industry. Its 1 Components do not add to 100 percent because of rounding. First and m . 47ost im Annual Survey of Profit Shari portantly, these aggregate ng meand 401(k) Plans: Reflecti asures are based on accounts held by ng 2003 Plan Year Experien participants fromce a . Minor investment options are not shown; therefore, percentages do not add to 100 percent. Percentages are dollar-weighted aver This report updates ICI and EBRI’s research of 401(k) plan participant activity ages. through year-end Saving B 2 uilds Account Ba for our in-depth and nonpartisan periodicals. lances .............................................................................................................. 4 popular. F effect held in plans at previous employers or rolled over into individual retirement accounts (IRAs) are not included. Account balance on o Jan r exam . 1, 198 ple, Profit Sharing/4 0, but it was not un0 til Nov 1(k) Council ember of of Am 1981 th erica (PSCA, 1997– at regulations were issu 2005) rep s are net of loan balances. ed (see Em orts that m ployee Ben ore efit educational, and scientific functions of the Institute. EBRI-ERF is a tax-exempt organization 2 Job tenure is generally years working at current employers, and thus may overstate years of participation in the current employer's 401(k) plan. stock, compared with about 24 percent among recently hired participants in 1998. At plans that offer both company mem bership includes 8,501 open-end investment companies (“mutual funds”), 662 closed-end investment companies, balances. In the consistent group, pa “Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product prima rticipants who were younger (or had fewer years of tenure) experienced rily invested in the security indicated. 2 23 wide range of ages and tenures, Chicago, IL: . “Contributi Profit Sharin on Behavior g/401( ma of ny k) Cou 401( of whom k) Pla ncil of America, 2004. are y n Participants.” ears away from ICI Perspe retirem ctive, ent and have only just started Vol. 7, No. 4, and EBRI Sample of 4.0 million participants with account balances at the end of each year from 1999 through 2004. Average Asset Allocation Suggests That Investors Have a Long-Term Investment Horizon .................. 6 2004, and n 3 Source: Tabul otes several k ations from EBR eI/IC ysupported b findin I Participant-D gs: y co irected R ntributions etirement Pl and g an D rants. ata Collection Project. 401(k) Research In plan sponsors are offering lifestyle and/or lifecy stitute (February 2005)). cle funds as an investment option (Figure 11). stock an Guaranteed investment contracts. d GICs or stable value funds as investment options, about 15 percent of the year-end 2004 account balances of 144 exchange-traded funds, and five sponsors of unit investment trusts. Its mutual fund members manage assets of the largest increases in average account balances be tween year-end 1999 and year-end 2004. For example, Issue Brief saving for ret , No. 238 (Invest irement. Young workers or ment Company those just starti Institute and ng o Employ ut at th ee Benefit Research Institute, eir current jobs simply have October not had the Younger 401(k) Pla th n Participan ts Tend to Favor Equities........................................................................ 6 • To get answers to many frequently asked questions about 40s Lifesty 13 le funds maintain a predetermined risk level and generally use words such as “conservative,” recently hired participants was invested in company stock, compared with almost 19 percent among those recently hired appro ximatel. y $ 46 8.370 Annual Survey of Profit Shari trillion (representing approxim ng atel and 401(k) Plans: Reflecti y 95 percent of all assets of U.S. m ng 2002 Plan Year Experien utual funds); these funds ce. • It is Consistent participation in 401(k) plans remai possible that these older longer-tenured workers accum ns e ulated DC plan ssential to successful saving assets, e.g., possibly in a : Consistent profit-sharing the average account balance of participants in their 20s rose 206 percent between the end of 1999 and the end EBRI Issue Brief is a periodical providing expert evaluations of employee benefit issues and 2001). time to accu Lifestyle and L mulate significant balances. Indeed, the ifecycle Funds Gain Popularity.................................................................................. majority of participants with an account balance less ..... 10 in 1998. employee bene? ts, click on Bene? t FAQs. “moderate,” or “aggressive” in their names to indicate the fund’s risk level. Lifecycle funds follow a serve Chicago, IL: approximately Profit Sharin 87.7 million s g/401( harehol k) Cou ders i n ncil of America, 2003. more than 51.2 million households. plan, prior to the introduction of 401(k) plan features. However, generally such DC plan arrangements did not permit participation has had a significant im trends, as well as cr pa itical analy ct on individuals’ ses of emplo ability yee benefit po to accum licies an ulate d proposals. sizeable gains in EBRI Notes is a of 2004 (Figure 3). This increase reflects the strong impact of contributions on account balances for this age Plans Offering 401(k) Loans Are Common, But Loans Are Rarely Taken ............................................ 10 than $10,000 only recently started at their current jobs. Fifty-eight percent of participants with account Introduction predeter 22 mined reallocation of risk over time to a specified target date, and typically rebalance their portfolios 3 employ . “The Im ee contrib pact of Em utions and o ploy ften er were -Selected Invest designed to be ment Options on supplemental to ot 401( her em k) Plan Participants’ ployer plans. Nevert Asset heless, it is possible th periodical providing current information on a variety of employee benefit topics. EBRI’s group. Because their accou The pe 401(k) account balances since 1999. By rcentage of participan nts ho t balances tend to lding no equity fund be smal ys tends to ear-end 2004, the average account balance am l, contributions produce si increase with age; the gnificant growth in them percentage of particip oan ng 401(k) ts . For additional details on the composition of plans, participants, and assets in the EBRI/ICI Participant-Directed Bibliography .................................................................................................................................13 . 45 Annual Survey of Profit Sharing and 401(k) Plans: Reflecting 2001 Plan Year Experience. balances less than $10,000 have been at their current employers five years or less (Figure 5). Bibliography • EBRI’s reliable health and retirement surveys are just a click 1, 2 to become more conservative and inco Pension Investment Report me-producing byp trh ov e target date. ides detailed financial information on the universe of defined that the average 401(k) account balance of older longer-tenure participants contains some savings accumulated prior to Allocations: Prelim Our inary Findings.” Working Paper prepared for The Center for Pension and Retirement holding no equity funds also tends to increase with tenure (see Appendix Figures A24 and A25). The EBRI/ICI database contains account-level information for nearly 40 percent of the estimated 43 Retire In contrast, th men participants who had t Plan Data Co e average account llection Proj held accounts si ect balance of older pa database, see th nce at least 1999 increase e Aprti pec nd ipants (particularly ix, which is avd b ailab y 36 perc t le hose with longer te online at: ent, despite experiencing nures) had By Tenure (years) Endnotes .......................................................................................................................12 ................16 Chicago, IL: Profit Sharing/401(k) Council of America, 2002. benefit, defined contribution, and 401(k) plans. EBRI Fundamentals of Employee Benefit th Second, since 401(k) e advent of §401(k). plans away through the topic boxes at the top of the page. were introduced relatively recently (about 25 3 years ago), even older and Research (CPRR) Current Pension Policy Issues Conference, at Miami University, Oxford, OH, June 8–9, ww 23 w.ici.org/pdf/per11-4_appendix.pdf. million U.S. Am In the EBRI/ICI database, l eriks, Johworkers who participated n, Robert D. Nestor, and Stephen P. Utk ifestyle and li in 401(k) plans at y fecycle funds us. are included in the balanced fund category Expectations for Retirement: A Survey of Retirem ear-end 2004. In addition, the inclusion of a and ent not yet recov one of the worst bear m ered from the impact of the bear arkets for stoc (Median Tenure: 7 Years) m ks since the arket. Figure 8 For participants in their 6 Great Depression. Com 0s, the average account paring a consistent sample Figure 12 13 Investment Com thpany Institute (A Programs ugust 2005 offers a straigh ) reports lifest tforward, basic explan yle and lifecycle muatu tion of al funds to emplotaled yee ben $1e 03 fit progr billionams in the at year- Figure 10 longer-tenure 14 d employees could have participated in a 401(k) plan for, at most, about half of their careers. . 44 Annual Survey of Profit Sharing and 401(k) Plans: Reflecting 2000 Plan Year Experience. 2001: Draft, May 2001. publications among recently hired participants there has been a rising Allocation to Equity Funds Decreases With Age trend in the percentage of account balances invested balance is still down nearl Investors consistent set of participan Investm. Valley ent options a Forge, P re y gr 5 percent at y oA u ts with accounts from p : The Vanguard Center for Retirem ed into eigh ear-end 2 t categori0 es. E y 04 ear-end 199 com quity p fu ared with nds c 9 thr ent Research an onsough iy sear-end 199 t of y po ear-end 20 oled i d The Vangu n9 (Figure vestm 04 allow ents pri 3). This decli ard Group, s m m ari elaningful y invest ne ed in Participants Now More Likely to Choose Balanced Funds private and public sectors. EBRI Databook on Employee Benefits is a statistical reference end 2004, an of participants such as thi increase of 49 percent ov ser provides the m the year. ost meaningful analysis of 401(k) trends, as opposed to This update extendPercentage of Assets Allocated to Equity Funds Varies Widely Among Participants s previous findings from the project for 1996 through 2003. For year-end 2003 results, see Holden • Instantly get e-mail noti? cations of the latest EBRI data, Nevertheless, the average account balance among participants in their 60s with more than 30 Figure 6 years of job Chicago, IL: Profit Sharing/401(k) Cou Average Asset Allocation of 401(k) Accounts, ncil of America, 2001. >30 Figure 2 stocks. These “funds” include401(k) Plan Average Asset Allocation Among Participants With Two equi volume on ty mutu emplo al fun yd ee b s, b ea nef nk it pro collectiv gramse tru and work sts, life in force suran related ce sep issues. arate accounts, and other in balanced funds. For Novem analysis of changes in account balances over tim ber 2004. example, at year-end 2004, 16 e. percent of the account balances of recent ly hired in assets reflects the magnitude of the impact of investment returns on these larger account balances, while Asset Allocation Distribution of 401(k) Participant Account Balance an 24 d VanD y. “401(k) ear-to-year erhei (Aug Plan Asset Allocation, Account ust 200 “snapshot 4 and Aug s” that change as older, ust 2004—Appe Balances, and Loan Acti ndix). high-account workers leave th Results for earlier year vit s y ar in 1999.” e availabe 401(k) le i ICI Perspect n earlier sy issu stem ive, es and of 1 Account Balances Increase With Age and Tenure 0–2 1,2 tenure is $17 For more det 9,18 ail by 9 at pay rtear-end 200 icipant age surveys, publications, and meetings and seminars by clicking gr 4 (Fi by Participant Age and Percentage of Total Assets, oup a gure 6). nd investment menu, see Appendix Fi 2004 gure A28. Domestic Stock Market Begins to Recover From Bear Market or Fewer Years of Tenure, Percentage of Total, 1998 and 2004 Figures pooled invest m rdents. Similarly, bond funds are any pooled account primarily invested in bonds, and balanced funds are to Equity Funds, Percentage of Participants, 2004 participants in their 20s is invested in balanced funds, compared with about 7 percent among that age group annual contributions are able to provide only a minor boost to large account balances. In addition, ICI Perspectiv . e 43 and Annual Survey of Profit Shari EBRI Issue Brief. All issues of Persp ng and 401(k) Plans: Reflecti ective are available through IC ng 1999 Plan Year Experien I’s Web site at ce. Vol. 7, No. younger, low-account workers enter. 1, and EBRI Issue Brief, No. 230 (Investment Com Notably 1, older and longer-te pany Institute, January nured participants have hi 2001, and Employ gher- ee Average 401(k) Account Balance, by Age and Tenure, 2004 Bloom This report includes two se berg, L.P. Bloomberg Data ctions. The first . New York, NY: Bloom section focuses on acco berg, L.P. unt balance information for Domestic Stock Market Indexes, Contact EBRI Publications, (2 December 1996 to December 2004 02) 659-0670; 24 fax publication orders to (202) 775-6312. 25 8 pooled accounts invested in bon the Sign Up for Updates box at the top of our home page. oth stocks and bonds. Company stock is equity in the plan’s sponsor (the employer). >20–30 in 19 In t98 (Fig he 2004u E rB e 12). A sim RI/ICI databa ilar pattern occurs across se, 87 percent of participan all age groups. ts are in plans offering loans. ww participants in their 60s w.ici.org/perspective/inde have a hi x.html and gher pr at Eopensit BRI’s We y to b site at www.ebri.org. make withdrawals. 2 Nevertheless, even for these older | 7% | Chicago, IL: Profit Sharing/401(k) Council of America, 2000. Benefit Research Ins than-average balances, an titute, February d younger an 2001). d shorter-tenured participants have smaller-than-average (month-end level) Subscriptions to EBRI Issue Briefs are included as part of EBRI membership, or as part of a Figure 1, participants who have consistently 401(k) Account Balances Incr m ease for Second Consecuti aintained accounts between 1999 and 2004. The second 12% ve Year...................................... section 5 Mone $200,000 y funds consist of those fund|s designed to maintain a stable sha | re price. Stable value products such as guaranteed 26 Cerulli Associates. “Retirement Markets 2004.” Cerulli Quantitative Update. Boston, MA: Cerulli participants, continued contributions through the bear market helped to mitigate the impact of the market 12.8% $199 annual sub | scription to EBRI Notes | and EBRI Issue Briefs. Individual copies are available nd 15.4% For ex 220 balances. ample, see Utkus (July 2005); Mitchell, Utkus, and Yang (2005); Holden and VanDerhei (October 2001); Estiprovides a snapshot of all mate of number of active 401(k) 401(k) plan participants at participants in y 20 ear- 04 is fro end 2004, reviewing their account balances, asset m Cerulli Associates (2004). investment contracts (GICs, which are insurance company products that guarantee a specific rate of return on the Average Asset Allocation Suggests That Investors Have a Long-Term Investment Horizon Figure 2, Domestic Stock Market Begi Hurd, Michael, and Susann Rohwedder. “The Retire . 42 Annual Survey of Profit Shari ns to Recover From ng and 401(k) Plans: Reflecti ment-Consum Bear Mp arket tion Puzzle.” ......................................... ng 1998 Plan Year Experien RAND Labor and 5 ce. | | 12% Associates, Inc., 2004. S&P 500 24.2% 60s with prepayment for $25 each (fo 26.2% r printed copies) or for $7.50 (as an e-mailed electronic file) decline on their account balances. Orders/ There’s lots more! Munnell, Sundén, and Taylor 20.1% (December 2000); and U.S. Government Accountability Office (October 1997). Fixed-Income | 20.7% | 29.8% 4 i allocations, and loan activi nvested capital over the life o ty. f the contract) and other stable value funds (which include synthetic GICs, which consist Chicago, IL: Consistent with a long-ter Profit Sharing/401( m invest >80 Percent k) Cou ment horizon, ncil of America, 1999. 401(k) plan participants are heavily invested in equity Plans Offering 401(k) Loans Are Co Population Working Paper, WR–242. Santa Monica, mmon, But Loans Are Rarely T CA: The RAND Corporation, Februar aken y 2005. See • HoEquity investing remains popular i lden and 10.5% VanDerhei (January|/February 2n 001 401(k) plans: ) for the summ |The bulk of ary of the year401(k) partic -end 1999 resuipants’ lts. assets rem 3 ained by calling EBRI or from www.ebri.org. Change of Address: 38.1% EBRI, 2121 K Street, NW, Suite Figure 3, Average Account Balances for Mo 8.0% st Age Groups Increase From 1999 Levels .................6 Investments 200 27 of a portfolio of fixed-income securitie | s “wrapped” with a guaran | tee (typically by an insurance company or a bank) to Choi, Jam es J., David Laibson, Brigitte C. Madrian, and Andrew Metrick. “Saving for Retirement on the Visit EBRI on-line today: www.ebri.org 25 securities. At For additionay l ear-end 2004, nearl loan activity analysis, see t 600, Washingto y half h(46 percen e Appn, DC 20037, (202) 659-0670; endixt) of 401( . k) plan participants’ fax number, (202) 775-6 account balances ar 312; e-mail: e $160,000 st 38.1% 5 in equity securities at year-end 2004. On average, 67 percent of participants’ >2–5 assets are invested in th | | Most participants in 401(k) plans are in plans that offer borrowing privileges. Indeed, research indicates Company Stock . 41 Annual Survey of Profit Sharing and 401(k) Plans: Reflecting 1997 Plan Year Experience. Figure 4, Ove Hurst, Erik. “Household Pr When subscriptions analyzir a Third of ng the change 401(k) Participants Ar i opensities to n account balaPlan for Retir nces over t e in Their 20s or 30s or Have Short Tenure ime, i em t i ent: A Lif s important e Cy to ha cle Analy ve a consi ss is.” Prepared for the 7 tent samp.......... le. Com 7 paring provide benefit payments according t 8.4% o the plan at 14book value) are reported as one category. The “other” category is the Path of Least Resistance.” Originally prepared for Tax Policy and t 6.9% he Economy 2001. Updated draft July 19, Publications Subscr | iptions@ebri.org. | Membership Information: Inquiries regarding EBRI invested in equity funds, on average (Figure 7). 21.0% Altogether, equity securities—equit 23% Zero y funds, th 26 Fixed-Income e equit 50s y 28 12.6% equity securities through equity funds, the equity portion of balanced funds, and company stock. 180 5.7% that offering The median loan a loan provision increases balance outstandin|g is $3 participa ,893 at year tion -eand contribution rates in 401(k) plans, nd 2004. | but concerns are 2 average account balances across different year-end sn 15.4% apshots can lead to false conclusions. For example, the addition of Annual Conf r Chicago, IL: esidual for o erence of the Retirement Resear ther Profit Sharin investmentg/401( s such as k) Cou real est ncil of America, 1998. ach Consor te funds. Th tium e fin “Towards a Secure al category, “unknown Retirement Sy ,” consists of fu stem nds ” August that could not 15 Securities membership and/or contributions to EBRI-ERF should be directed to EBRI President/ASEC Figure 5, M 2004. ore Than Half of Participants With Small Accounts Are New to Their Jobs..................8 Updated Trends in Account | Balances, Asset Allocation, | & Loan Activity 4 portion of balanced funds, and company stock—represent about two-thirds of 401(k) plan participants’ Equity Funds Changes in 401(k) Participants’ Account Balances also raised that individuals save onl a large num 29 ber of new plans (arguably | y a good event to then take thos ) to the e savings out. database would | 31.6%However, as tend to pull down has been the case for the the average account be identified. See further discussion Chairman Dallas in the App Salisbur endix. y at the above address, (202) 659-0670; 6.6% e-mail: salisbury@ebri.org 11–12, 2005, Washington, th DC: August 2005. Company Stock • 16 Investment preferences are shifting to simpler options: Lifestyle and lifecycle funds have increased The median loan amount outstanding as a percentage of remaining account balance is 18 percent at year-end 2004. . 40 Annual Survey of Profit Shari | ng and 401(k) Plans: Reflecti | ng 1996 Plan Year Experience. asset Figure 6, Account Balances Increase Wi s. 160 On average, asset al 13.0% locations of 401(k) plan th Age and Tpa enure rticipants are ............................................................. little changed in 2004. Previous 8 $120,000 balaE nce, mploy whiee Benefit Research Institute. “ ch could then be mistakenly descri H be is d as toryh u of 401(k) Plans: An Update.” rting current participants, but acFACTS from EBRI. tually would tell nothi ng about nine years that the EBRI/ICI databases have tracked 401(k) plan participants’ loan activity, relatively few The year-end 2004 EBRI/ICI database includes infor 10.2% mation for 16.3 million 401(k) plan 40s participants’ | 23% | in popularity in recent years among both plan sponsors and plan participants due to increasing Balanced 3 This sy The average stem of classi 401(k) account balance of all participan fication does not consider the number of di ts at y stinctear-end investme 2004 was $56 nt options prese ,878, up fr nted to a gi om the ven year- research indicates that in any given Chicago, IL: Profit Sharing/401(y k) Cou ear, 401(k) ncil of America, 1997. plan participants generally 12.6% do not rebalance or change the Ibbotson Associates. SBBI (Stocks, Bonds, Bills, and I | nflation) | 2005 Yearbook: Market R 9 esults for 1926– Balanced Funds Editorial Board: Dallas L. Salisbury, publisher; Steve Blakely, editor. Any views expressed in this publication and those of the author 4 s should Figure 7, consisten Washington, tly p 401(k) Plan Assets Concentrated in Equi articip DC: Em ating wo ploy rk >10–20 ers. Sim ee Benefit Re ilarly, the a search Institute, February ggregtate y Funds averag ............................................................. e account bala 2005. nce would tend to be pulled9 down if a participants make use of this borrowing privilege. At year-end 2004, only 19 percent of those eligible for Funds accounts, and allows for an accurate present-day snapshot of 401(k) plan participants. | 64.5% | 17 66.9% particip concern that m ant, but rather th any e typ 49.2% participants require es of options presen investm ted. Prelimin 49.3% ent ary research guidance and analyzin /or sim g 1.4 pler investm million particip ent ch ants oices. For drawn not be end 200 140 ascribed to the officers, 3 level of $51,56 trust 9. The median account balance (o ees, members, or other sponsors of the E r m m ploye id-point, with half e Benefit Research Institute, the EBRI Educ above and half below) was ation and asset 2004. Chicago, IL: Ib allocation in their accounts. botson Associates, 2005 . large number of older participants happ | ened to retire and roll over th | eir account balances. In addition, changes in the 50.0% 3 loans have loans outstanding (Figure 13). As in previous years, loan activity varies with age, tenure, salary, Figure 8, All Standard & Poor ocation to Equit ’s. S&P 500 Index y Funds Decreases With Age . New York, NY: Standard & Poor’ ............................................................... s. 9 Research Fund, or their staffs. Nothing herein is to be construed as an attempt to aid or hinder the adoption of any pending leEquity Funds gislation, regulation, from the 2000 EBRI/ICI database s | uggests that the sheer number o | f investment opt 9.5%io 37.7% ns presented does not influence Fidelity Investments. Building Futures, Volume V: How Workplace Savings Are Shaping the Future of $19,926 i examn ple, recently 2004, up from hired 4 $17,909 in 2 01(k) plan pa 003. However, these y rticipants in their 20s currently ear-to-year “snapshots” can be deceptive, since hold a higher percentage of 13.9% 27 sample of recordkeepers and/or changes in the set of plans that they recordkeep can also influence the change in $80,000 | | or interpretative rule, or as legal, accounting, actuarial, or other such professional advice. account balance, and plan size. Saving Builds Account Balances Investment Company Institute. Quarterly Supplemental Data. Washington, DC: Investment Company part 120 icipants. On average, participants have 10.4 distinct options but, on average, choose only 2.5 (see Holden and Figure 9, M Retirement (A Report on C ore Than a Third of Participants Forgo H >60–80 Percent orporate Defined Contribu | olding Com tion Pla 25% | p nany s). Boston, MA: Stock................................... Fidelity Investm 11 ents, 2004. the sam their 401(k) ple of 401(k) accounts in balanced funds—which include lifesty participants changes as older, high-account workers leave the 401(k) s le and lifecycle funds—tha ystem and n their aggre U.S. Government Accountabilit gate average account balance. Thy us, Office (GAO; former to ascertain what is haly ppe General Accounting ning to 401(k) particip Office). “401(k) Pension ants’ account balances, a 10 | | 28 VanDerh EBRI Issue e Brief i (M is ay 2 register 001 ed in the U. )). In add S. ition Patent and T , the prreli adem min ark ary an Office. aly ISs SN: 0887 is foun - d th 137X/90 at 40 0887 1(k) - p13 articip 7X/90 $ . ants are no 50+.50 t naïve—that is, Institute. The average 401(k) account balance of all participants at year-end 2004 is $56,878. Half of the Younger 401(k) Plan Participants Among participants with outstanding l Tend to Favor Equities oans at the end of 2004, the average unpaid balance is $6,946. | | consisten younger, low peers did in t set of pa -account workers enter. Com rticip 1998. ants must be analyzed. paring a consistent sample of participants, as done in this report, Figure 10, Percentage of Assets Plans: Loan Provisions Enhance Particip Allocated to Eq ation uit But Ma y Funds Varies Widely Am y Affect Income Security ong Participant for Some.” sLet .....t11 er Report, 51.6% 30s 50.9% Frank Russell Company. Russell 2000 Index. Tacoma, WA: Frank Russell Company. | | whe 100 n given “n” options they do not divide their assets among all “n.” Indeed, less than 1 percent of participants participants in the database have account balances less Russell 2000 than $19,926 (the median account balance), while half As observed in prior years, younger 401(k) plan participants still tend to hold a higher portion of their Participants’ loan activity in 2004 matches previous years: loan balances as a percentage of account balances provides the Did you re m ad o st this as a meaningful anal pass-along? ys is of 401( Stay aheak) account d of employbalance trends. ee benefit issues with your own subscription to EBRI 6 | | 7.8% 10/01/ . “Mutual Fu 97. GAO-HEHS-98-5. Washington, DC: U.S. nds and the U.S. Retirement Market in 2 Government Accountability Office, October 1997. 004.” ICI Fundamentals, Vol. 14, No. 4 36.5% Figure 11, The average acco $40,000 More 401(k) unt balan Pl cans Offering Lifesty e ($91,042) among the le, Lif 4.0 mecy illiocle Funds n consisten ................................................... t participants is higher than the averag 12 e • fo llowed Loans a a “1/r ne wi ” asset allocatio dely available, but ra n strategy. rely taken: Although research indicates that permitting loans 29 16.0% | 15.8% | 15.6% hold more. As noted above, younger participants and those just starting their current jobs tend to have accounts in equit (net of the un Hewitt Associates. Issue Brief paid loan bal yfor assets than older part onl Are y $49/ aWo nce) for participan ye rker ar electro s Preser n icipants, who ica vlliy ng Their 401(k) Retire e ts with loans continu -mailed to tend to i you or $1 nvest m >5–10 99/ 12.1% e m to hover aro ye en o ar pr t Wealth? re in fixed-incom inted an und Lincolnshire, IL: Hewitt d mai 13 percent. led e. F assets such as bond or more i In nformation 9.7% | | 4 (Investment Company Institute, August 2005). 7.4% account 80 balance ($56,878) among all 16.3 million 401(k) plan participants in the yea 1–20 Percent r-end 2004 database because the 15 Nearly 40 percent, or 4.0 million, of the participants with 401(k) plan accounts at the end of 1999 Utkus, Stephen P. “The question of loans.” Presente increases both participation and contribution rates in 401(k) plan d at “2005 US-UK Dialogue on Pensions,” July s, concern exists that individuals 19–21, Figure 12, abo Participants Now More Likely to Choose Balanced Funds ut subscriptions, visit our W | eb site at www 14.7% .ebri.org or compl | ete the for .............................................. m below and return it to EBRI. 12 smaller account balances, while older participants and those with longer tenure tend to have higher account addition, funds, g Associat At year-end u con aranteed investm es, L sistent with previous 20 LC, July 2005. 04, 65 pe ercent o nt contracts (GICs) and ot f b years, there is va alanced mutual fu riation arou nd her stable value funds, or assets were inv nd this average: Older participants, longer- ested in equ m ities (see oney funds. Investm On average, ent Company 20s 11.0% consistenDec- t particip Jun-anDec- ts havJun- e long Dec- er tenJun- ure, on av Dec- erag Jun- e, co Dec- mpar Jun- ed toDec- the en Jun- tire dat Dec- abase Jun- (and Dec- accou Jun- nt bal Dec- ances tend to 1998 2004 1998 2004 1998 2004 maintained accounts at the end of each year from 1999 through 2004. An examination of this consistent 2005 will undo those benefits by , in Washington, DC: July 21, taking the 2005. money out prior to retirement. However, loan activity among balances. These averages blend the expe . “Redemption Activity of Mutual Fund riences of 16. Owners.” 3 million diverse 401(k) pl ICI Fundamentals, Vol. 10, N an participants, o. 1 (Investment many of Institute, Quarterly Supplemental Data). tenured participants, and pa participants in their 20s Figure 13,Nam Few Participants Take Loans From e have 52 percent rticipants with higher of their acc Their 4 account balances tend to have l ount balances invested in equit 01(k) Plans ................................................... ower loan ratios. y funds, com pared with 13 96 97 97 98 98 99 99 00 00 01 01 02 02 03 03 04 04 ----20s---- ----40s---- ----60s---- rise with tenure). Indeed, the minimum tenure in the consistent group at year-end 2004 is five years. . Trends and Experiences in 401(k) Plans, 2005. Lincolnshire, IL: Hewitt Associates, LLC, 2005a. Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. $0 subgroup of participants helps to m >40–60 Percent ore reliably portray the growth of 401(k) 18 plan account balances over time Company 401(k) plan Institute, March 2001). participants continues to be limited: In 2004, 19 percent of participants in plans that whom are young and/or new to their jobs. Indeed, about 37 percent of participants in the year-end 2004 16 about 37 percent of account balances for participants in their 60s (Figure 8). >20–40 Percent Participants in their 20s hold Organization 20s 40s 60s Note: Components may not add to 100 percent because of rounding. Age Group Unless otherwise indicated, all asset allocation averages are expressed as a dollar-weighted average. Sources: Bloomberg, Frank Russell Company, and Standard & Poor's. 0–2 >2–5 >5–10 >10–20 >20–30 >30 by removing from the analysis the effects of participants and plans who entered or left the EBRI/ICI offered loans have loans outstanding. On average, among participants with loans, the loan represents EBRI/ICI dat 1 abase are in their 20s or 30s, and about a similar percentage have five or fewer years of tenure The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. The Russell 2000 Index measures the performance of Address Age Group 5 Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Years of Tenure database. the 2,000 smallest U.S. companies (based on total market capitalization) included in the Russell 3000 Index (which tracks the 3 ,000 largest U.S. companies). (Figure 4). 13 percent of the rem 1 aining account balance at year-end 2004. Minor investment options are not shown; therefore, column percentages do not add to 100 percent. 2 City/State/ZIP All indexes are set to 100 in December 1996. Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. 2 Drawn from samples of 1.2 million participants with two or fewer years of tenure in 1998 and 1.8 million participants with two or fewer years of tenure in 2004. 1 Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Minor investment options are not shown; therefore, column percentages do not add to 100 percent. 3 Mail to: EBRI, 2121 K Street, NW, Suite 600, Washington, DC 20037 or Fax to: (202) 775-6312 Fixed-income investments include bond funds, guaranteed investment contracts (GICs) and other stable value funds, and money funds. For a detailed breakdown see 2 Source: Tabulations from EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. Note: The average account balance among all 16.3 million participants is $56,878; the median account balance is $19,926. Fixed-income securities include bond funds, guaranteed investment contracts (GICs) and other stable value funds, and money funds. Appendix Figure A28. Note: Includes the 16.3 million participants in the year-end 2004 EBRI/ICI database. 3 4 “Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security “Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product prima © 2005, Employee Benefit Research Institute -Education and Research Fund. All rily invested in the security indicated. rights reserved. EBRI Issue Brief No. 285 • September 2005 • © 2005 EBRI • www.ebri.org indicated. EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • © 2005 EBRI • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org 16 14 13 18 10 17 15 6 8 3 2 4 7 5 EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org EBRI Issue Brief No. 285 • September 2005 • www.ebri.org 11 12 9