This Issue Brief examines asset allocation, account balance, and loan activity of a large and representative group of 401(k) plan participants as of year-end 2001 using data gathered by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) in their collaborative effort known as the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project. The EBRI/ICI 401(k) database is the most comprehensive source of 401(k) plan participant-level data available to date, containing 14.6 million active 401(k) plan participants in 48,786 plans with $632.7 billion in assets. The 2001 database accounts for 12 percent of all 401(k) plans, 33 percent of all 401(k) participants, and about 36 percent of the assets held in 401(k) plans.
On average, asset allocation in 2001 was little changed over previous years. While broad equity market indexes fell 12 percent in 2001, continuing contributions into 401(k) plans as well as diversified asset allocation generally muted the impact of the poor market performance on participants' account balances. The average account balance fell 4 percent in 2001 among participants with accounts at year-end 1999, year-end 2000, and year-end 2001. In addition, loan activity in 2001 continued as observed since 1996: Many participants are in plans offering loans, but few participants have a loan outstanding (16 percent among those with a loan option).
The average asset allocation of 401(k) participants in the 2001 EBRI/ICI database was essentially unchanged from year-end 2000, despite the continued volatility in equity markets in 2001. Among 401(k) participants in the 2001 EBRI/ICI database, almost 70 percent of plan balances are invested directly or indirectly in equity securities. Forty-eight percent of plan balances are invested in equity funds, 17 percent in company stock, and 8 percent in balanced funds.
About 45 percent of the participants in the EBRI/ICI year-end 2001 database are in plans offering company stock as an investment option. More than half of these participants hold 20 percent or less of their account balances in company stock, including 35 percent who hold none. On the other hand, 16 percent of these participants hold more than 80 percent of their account balances in company stock.
The average account balance of participants who consistently held accounts at year-end 1999, year-end 2000, and year-end 2001 declined about 4 percent in 2001. The change in a participant's account balance consists of contributions, investment returns, withdrawals, borrowing, and loan repayments.
The change in account balance in 2001 again varies with participant age. For example, the average account balance of participants in their 20s consistently holding accounts increased about 16 percent in 2001 because contributions typically are large relative to existing account balances and more than offset investment returns. Relative to contributions, investment returns are more significant for older participants, and the average account balance among participants in their 60s fell about 9 percent in 2001. However, some participants in their 60s may be making withdrawals as well.
At year-end 2001, the average account balance (net of plan loans) for all participants was $43,215, and there is a wide distribution of account balances around that average.
