What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2013

September 2015
EBRI Issue Brief #418
Paperback, 28 pp.
PDF, 609 kb
Employee Benefit Research Institute, 2015

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Executive Summary

  • The annual EBRI/ICI 401(k) database update report is based on large cross sections of 401(k) plan participants. The cross sections cover participants with a wide range of participation experience in 401(k) plans; therefore, meaningful analysis of the potential for 401(k) participants to accumulate retirement assets must examine how a consistent group of participants’ 401(k) accounts change over time.
  • Two major insights emerge from looking at consistent participants in the EBRI/ICI 401(k) database over the six-year period from year-end 2007 to year-end 2013:

o The average 401(k) account balance fell 25.8 percent in 2008, and then rose from 2009 through year-end 2013. Overall, the average account balance increased at a compound annual average growth rate of 10.9 percent from 2007 to 2013, to $148,399 at year-end 2013.

o The median (midpoint) 401(k) account balance increased at a compound annual average growth rate of 15.8 per-cent over the period, to $75,359 at year-end 2013.

  • Analysis of a consistent group of 401(k) participants highlights the impact of ongoing participation in 401(k) plans. At year-end 2013, the average account balance among consistent participants was more than twice the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was more than four times the median balance across all participants at year-end 2013.
  • Younger 401(k) participants or those with smaller initial balances experienced higher percentage growth in account balances compared with older participants or those with larger initial balances. Three primary factors affect account balances: contributions, investment returns, and withdrawal/loan activity. The percentage change in average account balance of participants in their 20s was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 46.6 percent per year between year-end 2007 and year-end 2013.
  • 401(k) participants tend to concentrate their accounts in equity securities. The asset allocation of the 4.2 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 26.4 mil-lion participants in the entire year-end 2013 EBRI/ICI 401(k) database. On average at year-end 2013, about two-thirds of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants.
  • Equity holdings by consistent 401(k) participants increased slightly among younger participants and decreased slightly for older participants. High allocations to equities dropped for both groups from 2007 to 2013.
  • More consistent 401(k) plan participants held target-date funds at year-end 2013 than at year-end 2007, on net; many of those with target-date funds held all of their 401(k) account in target-date funds.