Study: Average 401(k) Balances Climb 10% in 2005

August 24, 2006 ( - The average account balance workers held in their 401(k) plans climbed by 50% between 1999 and 2005, with 10% of that growth occurring in 2005, according to a recent study.

class=”normal-1″> The study by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) looked at 401(k) account holders that have consistently held those accounts, and found that in six years, average account balances rose from $67,785 to $102,014, and the median balances rose from $24,371 to $54,591 for the same period.

class=”normal-1″> The authors of the report attribute the increase to employer and employee contributions as well as a stock market boost since 2002, with average account balances and median balances taking the sharpest upturn between 2002 to 2003.

class=”normal-1″> Segregated by age, the study showed that new contributions tend to have a greater impact on younger workers’ 401(k) accounts and market returns tend to have a greater impact on older, longer-tenured workers’ accounts.

class=”normal-1″> The study revealed several differences related to the ages of participants. More than one third of 401(k) participants fall in the age range between 20s and 30s; 31% of participants are in their 40s, and 24% are in their 50s. However, among the findings tying account balances to age and job tenure, was that younger workers just starting out at a job have smaller balances because they have not yet had time to accumulate money.

class=”normal-1″> In addition, the authors found that 48% of account balances are invested in equity funds and 11% in balanced funds. The study also echoes a trend away from investing plan assets in company stock, with the share of participants holding assets in company stock dropping off to 13% of assets in 2005.

class=”normal-1″> Keeping in line with previous results on asset allocations, younger plan participants are still holding a higher amount of their assets in equities, where older workers tend to steer toward bonds. In 2005, for instance, about 52% of participants in their 20s invest about 52% of their assets in equity funds and participants in their 30s invest nearly 58% in equity bonds. For the same year, plan participants in their 60s invested about 37.8% in equity funds.

class=”normal-1″> Another finding is the increasing popularity of lifestyle and lifecycle funds – or balanced funds. Participants have increased their asset allocations in balanced funds, which have seen a rise from 8% in 1996 to 11% in 2005.

class=”normal-1″> According to the authors, some plan sponsors add lifestyle or lifecycle funds to their plans’ investment offerings to make it easier for participants to make investment choices, or are too busy to manage the allocations of their 401(k) accounts. The percentage of plans using these options has increased from 12.1% in 1996 to 48.5% in 2005.

class=”normal-1″> For the full study go here .