401(k)s Losing Momentum

May 2, 2001 (PLANSPONSOR.com) - Volatile equity markets took a toll on 401(k) plan assets last year, with balances shrinking by $72 billion, losing ground for the first time since the inception of the popular retirement plan.

The average participant balance slipped 10.3% in 2000, according to the latest research in The Cerulli Report series, Market Update: The 401(k) Industry. At year-end, the average balance fell to $41,919 from $46,740 in 1999.

The decline wasn’t unexpected since roughly 80% of the $1.1 trillion growth in 401(k) assets over the past five years came from market appreciation, according to Cerulli. During the same period, contributions to the programs exceeded distributions by just $194 billion.

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Participants remained exposed to equities, and committed to company stock despite the turbulence. Nearly 20% of 401(k) assets were held in company stock, while nearly a third (31%) was invested in retail mutual funds.

While cash and stable value investments increased their share of 401(k) assets from 9% to 12%, Cerulli notes this was due to positive returns on these investments rather than new contributions.

Leveling off

Results of the study also suggest that growth in the 401(k) market is leveling off as new plan growth slows and participation peaks, specifically:

  • the rate of adoption of new plans declined to about 8% per annum last year, from 15% in the mid-1990s
  • while the number of participants in 401(k) plans grew annually at rates in the mid-teens during the late 1980s, growth was just 7% in 2000
  • the rate at which new assets are being added to 401(k) plans also appears to be slowing, and
  • net new flows into 401(k) plans are expected to remain flat at around $40 billion in the next five years.


Distributions are growing at a faster pace than contributions, as the average age of workers increases, contributing to this flattening of net flows.

In 2000, for every dollar contributed to a 401(k) plan 74 cents was distributed to retirees and terminated employees. Cerulli estimates that this will increase by 10 cents by 2006.


– Camilla Kleineditors@plansponsor.com