What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2012

July 2014
EBRI Issue Brief #402
Paperback, 28 pp.
PDF, 1,471 kb
Employee Benefit Research Institute, 2014

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Executive Summary

The importance of analyzing a consistent group of participants. The annual EBRI/ICI 401(k) database update report is based on large cross sections of 401(k) plan participants with a wide range of tenure and participation experience. Consequently, meaningful analysis of the potential for 401(k) participants to accumulate retirement assets over an extended period must examine how a consistent group of participants’ 401(k) accounts change over time. About 34 percent, or 7.5 million, of the 401(k) participants with accounts at the end of 2007 in the EBRI/ICI 401(k) database are in the consistent sample.

Average and median balances of consistent 401(k) participants continue to increase. Overall, the average account balance of consistent 401(k) participants increased at a compound annual average growth rate of 6.8 percent from 2007 to 2012, to $107,053 at year-end 2012. The median 401(k) account balance increased at a compound annual average growth rate of 11.9 percent over the period, to $49,814 at year-end 2012.

Analysis of a consistent group of 401(k) participants highlights the impact of ongoing participation in 401(k) plans. At year-end 2012, the average account balance among consistent participants was 67 percent higher than the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was almost three times the median balance across all participants at year-end 2012.

Younger participants or those with smaller initial balances experienced higher percent growth in account balances compared with older participants or those with larger initial balances. Three primary factors impact account balances: contributions, investment returns, and withdrawal/loan activity. 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 41.8 percent per year between year-end 2007 and year-end 2012.

401(k) participants tend to concentrate their accounts in equity securities. The asset allocation of the 7.5 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 24.0 million participants in the entire year-end 2012 EBRI/ICI 401(k) database. On average, about three-fifths 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.

More consistent 401(k) plan participants held target-date funds at year-end 2012 than at year-end 2007, on net; a third of those with target-date funds held all of their 401(k) account in target-date funds. At year-end 2007, 27.6 percent of consistent 401(k) plan participants held at least some target-date fund assets in their 401(k) accounts. At year-end 2012, that share had risen to 32.1 percent as more 401(k) participants added some target-date fund assets to their 401(k) accounts than removed them entirely, around a substantial core that held them in both periods. At year-end 2012, 10.0 percent of consistent 401(k) plan participants, or nearly one-third of those holding any target-date fund assets, exclusively held target-date fund assets.