What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Plan Account Balances and Asset Allocations, 2016–2022

Summary

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 participation experience.[iii] 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 2016 through 2022.

Key Findings:

This paper provides an update of a longitudinal analysis of 401(k) plan participants drawn from the EBRI/ICI 401(k) database.

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). For example, because of changing samples of providers, plans, and participants, changes in account balances for the entire database are not a reliable measure of how individual participants have fared. A consistent sample is necessary to accurately gauge changes, such as growth in account balances or changes in asset allocations, experienced by individual 401(k) plan participants over time.

A few key insights emerge from looking at the 2.1 million consistent participants in the EBRI/ICI 401(k) database over the six-year period from year-end 2016 to year-end 2022.

• The average 401(k) plan account balance for consistent participants rose each year from year-end 2016 through year-end 2021 before falling in 2022 alongside stock and bond market declines. Overall, the average account balance increased at a compound annual average growth rate of 13.8 percent from 2016 to 2022, rising from $70,664 to $153,680 at year-end 2022. The median 401(k) plan account balance for consistent participants followed a similar pattern and increased at a compound annual average growth rate of 20.8 percent over the period, to $68,080 at year-end 2022.
• Younger 401(k) participants or those with smaller year-end 2016 balances experienced higher percent growth in account balances compared with older participants or those with larger year-end 2016 balances. Three primary factors affect account balances: contributions, investment returns, and withdrawal and loan activity. The percent change in average 401(k) plan account balance of participants in their twenties was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 48.6 percent per year between year-end 2016 and year-end 2022.
• 401(k) participants tend to concentrate their accounts in equity securities. The asset allocation of the 2.1 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation seen in the annual EBRI/ICI 401(k) database updates. On average, at year-end 2022, about 70 percent of consistent 401(k) participants’ assets were invested in equities—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.
• Consistent 401(k) participants’ exposure to equities was relatively unchanged between year-end 2016 and year-end 2022. At year-end 2016, 92.8 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 2022, with 94.8 percent of consistent 401(k) plan participants holding equities.
• Consistent 401(k) participants increased their exposure to target date funds between year-end 2016 and year-end 2022. At year-end 2016, 55.3 percent of consistent 401(k) participants held at least some target date fund investments in their 401(k) accounts, and that share increased to 60.0 percent at year-end 2022. The net movement toward target date fund use over the period occurred among consistent 401(k) participants in all age groups. Participants in their twenties had the highest use of target date funds in both periods but experienced the smallest net change.
• Most consistent 401(k) participants who were fully invested in target date funds at year-end 2016 remained fully invested in target date funds at year-end 2022. Among consistent 401(k) plan participants who were fully invested in target date funds at year-end 2016, nearly 90 percent were fully invested in target date funds at year-end 2022. This high level of persistence in target date fund investing was observed across all participant age groups.