This paper provides an update of a longitudinal analysis of 401(k) plan participants drawn from the EBRI/ICI 401(k) database. The Employee Benefit Research Institute (EBRI)[i] and the Investment Company Institute (ICI)[ii] also produce an annual cross-sectional analysis, which covers 401(k) plan participants with a wide range of participant experience. But that snapshot cannot determine how 401(k) participants’ asset allocations change over the years. For example, because of changing samples of providers, plans, and participants, changes in asset allocation for the entire database are not a reliable measure of how individual participants have acted. A consistent sample is necessary to accurately gauge changes, such as in exposure to equities or target date fund use, for individual 401(k) plan participants over time. This paper will examine the accounts of consistent participants, that is, those who maintained accounts in each year from 2010 through 2018.
Consistent 401(k) participants’ exposure to equities was relatively unchanged between year-end 2010 and year-end 2018. At year-end 2010, 93.3 percent of consistent 401(k) plan participants held some equities (equity funds, target date funds, non-target date balanced funds, or company stock). This was little changed at year-end 2018, with 93.5 percent of consistent 401(k) plan participants holding equities. Movement toward holding some equities was highest among participants in their twenties: 92.4 percent held equities at year-end 2010 and 94.2 percent held equities at year-end 2018.
Consistent 401(k) participants — especially those in the older age cohorts — increased their exposure to target date funds between year-end 2010 and year-end 2018. At year-end 2010, 49.9 percent of consistent 401(k) participants held at least some target date fund investments in their 401(k) accounts, and that share increased to 56.4 percent at year-end 2018. All age groups increased their exposure to target date funds. However, the largest net movement toward target date fund use over the period occurred among consistent 401(k) participants in their forties, fifties, and sixties. Participants in their twenties had the highest use of target date funds in both time periods but experienced the smallest net change.
Most consistent 401(k) participants who were fully invested in target date funds at year-end 2010 remained fully invested in target date funds at year-end 2018. Among consistent 401(k) plan participants who were fully invested in target date funds at year-end 2010, nearly 75 percent remained fully invested in target date funds at year-end 2018. This high level of persistence in target date fund investing was observed across all participant age groups.
[i] The Employee Benefit Research Institute (EBRI) is a nonprofit, nonpartisan, public policy research organization that does not lobby or take positions on legislative proposals.
[ii] The Investment Company Institute (ICI) is the leading association representing regulated funds globally, including mutual funds, exchange-traded funds (ETFs), closed-end funds, and unit investment trusts (UITs) in the United States, and similar funds offered to investors in jurisdictions worldwide. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. ICI carries out its international work through ICI Global, with offices in Washington, DC, London, Brussels, and Hong Kong.