EBRI issues research findings on 401(k) plan account balances, allocations

Researchers with the Employee Benefit Research Institute (EBRI) on Aug. 27 reported their findings from an analysis of 401(k) plan participants drawn from the EBRI /ICI 401 (k) database. The analysis focused on the 2.1 million consistent participants in the database over the six-year period from year-end 2016 to year-end 2022, per the EBRI Issue Brief. The brief was authored by EBRI’s Sarah Holden, Steven Bass, and Craig Copeland. ICI is short for Investment Company Institute, which has an office in Washington, D.C., where EBRI is headquartered.

Findings

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 — had higher percentage 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, according to EBRI. The percentage change in average 401(k) plan 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 48.6 percent per year between year-end 2016 and year-end 2022. The research found that 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 stock funds, the equity portion of target-date funds, the equity portion of non–target date balanced funds, or company stock. Younger 401(k) participants not surprisingly tend to have higher concentrations in equities than older 401(k) participants, EBRI’s analysis found. 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 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 20s had the highest use of target-date funds in both periods but had 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.