Study examines significant account growth for 401(k) plan participants

Findings from an Employee Benefit Research Institute (EBRI) and Investment Company Institute (ICI) study maintain consistent 401(k) plan participant account balances increased from year-end 2016 through year-end 2020.

© Shutterstock

The analysis study was based on the EBRI/ICI database of employer-sponsored 401(k) plans, tracking the account balances of 3.7 million 401(k) plan participants possessing accounts in the year-end 2016 EBRI/ICI 401(k) database and each subsequent year through year-end 2020.

“Younger 401(k) plan participants tended to be more invested in equity funds and target date funds while older participants were more likely to invest in fixed-income securities,” EBRI Director of Wealth Benefits Research Craig Copeland said. “At year-end 2020, 401(k) plan participants in their twenties had allocated 86 percent of their plan account balances to equities while participants in their sixties had allocated 57 percent to equities.”

Per the EBRI and ICI, the three primary factors impacting 401(k) plan account balances are contributions by the participant, employer, or both; investment returns; and withdrawal and loan activity.

The study findings showed the median 401(k) plan account balance for consistent participants rose at a compound annual average growth rate of 28.3 percent over the period, to $62,134 at year-end 2020, and 401(k) participants tend to concentrate their accounts in equity securities.

“Exploring the changes in account balances among consistent 401(k) plan participants highlights the strength of the 401(k) plan as a powerful savings tool,” ICI Senior Director of Retirement and Investor Research Sarah Holden said. “Younger 401(k) plan participants, whose relatively smaller initial account balances benefited from contributions as well as market returns, saw the highest growth rates over the period.”