It Pays to Consistently Participate in a 401(k) Plan

By Ted Godbout • October 30, 2017 • 0 Comments
How important is it to consistently participate in a 401(k) plan? According to new research from the EBRI/ICI 401(k) database, the average account balance among consistent participants at year-end 2015 was almost double the average account balance among all participants in the database.

EBRI’s issue brief, “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Plan Account Balances, 2010-2015,” provides a longitudinal analysis that tracks the account balances of 7.3 million 401(k) plan participants who had accounts in the year-end 2010 EBRI/ICI 401(k) database and each subsequent year through year-end 2015.

The brief shows that at year-end 2015, 22% of the consistent group had more than $200,000 in their 401(k) accounts at their current employers, while more than 17% had between $100,000 and $200,000. In contrast, only 10% in the broader EBRI/ICI 401(k) database had accounts with more than $200,000 and 9% had between $100,000 and $200,000.

Reflecting their higher average age and tenure, the consistent group also had much higher median and average account balances compared to the broader EBRI/ICI 401(k) database, according to the brief. At year-end 2015, the average 401(k) plan account balance of the consistent group was $143,436, increasing at a compound annual average growth rate of nearly 14% from 2010 to 2015, almost double the $73,357 average account balance among participants in the entire EBRI/ICI 401(k) database.

Meanwhile, the median 401(k) plan account balance for consistent participants increased at a compound annual average growth rate of nearly 18% over the period, to $66,412 at year-end 2015 — almost four times the median account balance of $16,732 for participants in the entire EBRI/ICI 401(k) database.

The data further show that the asset allocation of the consistent group was broadly similar to the asset allocation of the entire year-end 2015 EBRI/ICI 401(k) database. On average at year-end 2015, about two-thirds of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, or company stock. Not surprisingly, younger 401(k) participants were found to have higher concentrations in equities than older 401(k) participants.

Among the consistent group, the brief notes that individual 401(k) participants experienced a wide range of outcomes, often influenced by contributions, investment returns and withdrawal or loan activity. For example, younger participants and those with fewer years of tenure experienced the largest percent increases in average account balance between 2010 and 2015. Since their account balances tended to be smaller, their contributions produced higher percentage growth in their balances. In contrast, older participants and those with longer tenures who tended to have larger balances at the start of the study period showed more modest percent growth in account size, the brief explains.