401(k)'s See Average Balance Increase of 36% Over 5 Year Period

September 28, 2005 (PLANSPONSOR.com) - The average balance increase for 401(k) accounts continuously maintained from 1999 to 2004 was 36%, according to a new study.

According to a press release on the study from the Employee Benefits Research Institute (EBRI) and the Investment Company Institute (ICI), among the group who maintained a 401(k) balance over that five year period, the average balance increased from $67,016 at the end of 1999 to $91,042 at the end of 2004. The group’s average balance increased by 15% in 2004 alone.

The groups found a great variation in averages by age, however. According to the release, average account balances for participants in their 20’s grew 206% during the five year period, while those for participants in their 60’s were down by almost 5%.

The increase for the 20-somethings is attributed to the impact of their contributions to their accounts, while the decline in the 60-somethings account balances is attributed to the impact of the bear market on assets and the tendency for participants in their 60’s to make withdrawals.

The groups pointed out in their report that typical year-to-year reports of account balance changes do not necessarily reflect the impact of consistent participation, since the sample changes each year due to older workers leaving their plans and younger workers entering theirs. The average 401(k) balance of all participants at year-end 2004 was $56,878, compared to $51,569 at year-end 2003. The median account balance was $19,926 at year-end 2004, compared with $17,909 at the end of 2003.

Other findings of the study, according to the announcement, include:

  • Lifestyle or lifecycle funds have increased in popularity in recent years. Recently hired 401(k) participants in their 20s currently hold a higher percentage of their 401(k) accounts in balanced funds, including lifestyle and lifecycle funds, than did their peers in 1998.
  • In 2004, 19% of participants in plans that offered loans had loans outstanding. On average, among participants with loans, the loan represented 13% of the remaining account at year-end 2004. In fact, EBRI/ICI research suggests that the availability of loans serves more as an inducement to contribute more to plans rather than as a drain on participant assets.
  • The bulk of 401(k) participants’ assets remained in equities at year-end 2004, despite the wrenching experience of the bear market. On average, 67% of participants’ assets were invested in equities through equity funds, the equity portion of balanced funds, and company stock. But these averages also do not reflect the wide range of individual investment choice among all 401(k) plan participants.

The report,“401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2004” can be found here .