More than a Quarter of 401(k) Participants Hold Lifecycle Funds

December 18, 2008 ( - At year-end 2007 more than 7% of 401(k) assets were invested in lifecycle funds and one-quarter of 401(k) participants held lifecycle funds, according to an analysis conducted by the nonpartisan Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

The findings are part of the annual update of the EBRI/ICI 401(k) database, and reflect that assets in lifecycle funds represent 7.4% of total 401(k) assets in the database, and 25.1% of participants in the database were invested in lifecycle funds. The analysis found that about two-thirds of 401(k) plans included lifecycle funds in their investment lineup at year-end 2007.

Across all age groups, more new or recent hires invested their 401(k) assets in balanced funds, including lifecycle funds, the data shows. At year-end 2007, 28% of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with 24% in 2006. At year-end 2007, almost 19% of the account balances of recently hired participants in their 20s were invested in lifecycle funds compared with 16% at year-end 2006.

The bulk of 401(k) assets continued to be invested in stocks. On average, at year-end 2007, about two-thirds of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. However, the share of 401(k) accounts invested in company stock continued to shrink, falling by 0.5 percentage point to 10.6% in 2007.

About one-third of 401(k) assets were in fixed-income securities such as stable value investments and bond and money market funds.

Additional findings of the database update include:

  • In 2007, 18% of all 401(k) participants eligible for loans had a loan outstanding against their 401(k) account, the same percentage as at year-end 2006. Most loans tended to be small, amounting to 12% of the remaining account balance, on average, similar to year-end 2006.
  • At year-end 2007, the average account balance in the EBRI/ICI database was $65,454, compared with $61,346 at year-end 2006. 401(k) account balances varied with participant age, tenure, and salary. Individuals with account balances of less than $10,000 were primarily young workers or workers with short job tenures, and those with account balances in excess of $100,000 were primarily older workers or workers with longer job tenure.

A report of the analysis, written by Jack VanDerhei, EBRI research director; Sarah Holden, ICI senior director of retirement and investor relations; Craig Copeland, EBRI senior research associate; and Luis Alonso, EBRI director of information technology and research databases is published in the December 2008 EBRI Issue Brief and the ICI Perspective.

Findings from the study were presented at a hearing, convened by the U.S. House Committee on Education and Labor in October regarding the impact of the market tumult on retirement plans (See Congress Considers Market Impact on Retirement Security ). The hearing left many thinking the days of the 401(k) could be numbered (See Cover: The Plot to Kill the 401(k) ).