What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Plan Account Balances, 2010–2014

September 2016
EBRI Issue Brief #426
Paperback, 28 pp.
PDF, 1,212 kb
Employee Benefit Research Institute, 2016

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Executive Summary

This Issue Brief provides an annual update of the longitudinal analysis of 401(k) plan participants drawn from the EBRI/ICI 401(k) database -- the largest, participant-level database of its kind, with about 24.9 million 401(k) participants at year-end 2014.

Because the annual cross sections cover participants with a wide range of participation experience in 401(k) plans, meaningful analysis of the potential for 401(k) participants to accumulate retirement assets must examine the 401(k) plan accounts of participants who maintained accounts over all of the years being studied (“consistent participants”). The main body of the Issue Brief focuses on consistent participants for the 2010-2014 period, while the appendix addresses the 2007-2014 period.

Two major insights emerge from looking at the 8.8 million consistent participants in the EBRI/ICI 401(k) database over the four-year period from year-end 2010 to year-end 2014.

1. The average 401(k) plan account balance for consistent participants rose each year from 2010 through year-end 2014. Overall, the average account balance increased at a compound annual average growth rate of 15.5 percent from 2010 to 2014, to $130,493 at year-end 2014.

2. The median (mid-point) 401(k) plan account balance for consistent participants increased at a compound annual average growth rate of 19.7 percent over the period, to $56,653 at year-end 2014.

Analysis of a consistent group of 401(k) participants highlights the impact of ongoing participation in 401(k) plans. At year-end 2014, the average account balance among consistent participants was 1.7 times the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was more than three times the median balance across all participants at year-end 2014.

Younger 401(k) participants or those with smaller year-end 2010 balances experienced higher percent growth in account balances compared with older participants or those with larger year-end 2010 balances. Three primary factors affect account balances: contributions, withdrawal and loan activity, and investment returns. The percent 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 44.1 percent per year between year-end 2010 and year-end 2014.

401(k) participants tend to concentrate their accounts in equity securities. The asset allocation of the 8.8 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 24.9 million participants in the entire year-end 2014 EBRI/ICI 401(k) database. On average at year-end 2014, 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.