401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2008

Abstract

Over the past two decades, 401(k) plans have grown to be the most widespread private-sector employer-sponsored retirement plan in the United States, and now serve as the most popular defined contribution (DC) plan, representing the largest number of participants and assets. In 2008, 49.8 million American workers were active 401(k) plan participants. By year-end 2008, 401(k) plan assets had grown to represent 16 percent of all retirement assets, amounting to $2.3 trillion. In an ongoing collaborative effort, the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) collect annual data on millions of 401(k) plan participants as a means to accurately portray how these participants manage their accounts. This paper is an update of EBRI and ICI’s ongoing research into 401(k) plan participants’ activity through year-end 2008. The report is divided into five sections: The first describes the EBRI/ICI 401(k) database; the second focuses on changes in participant account balances over time, analyzing a group of consistent 401(k) participants; the third presents a snapshot of participant account balances at year-end 2008; the fourth looks at participants’ asset allocations, including analysis of 401(k) participants’ use of lifecycle, or target-date, funds; and the fifth focuses on participants’ 401(k) loan activity.

Looking at consistent participants in the EBRI/ICI 401(k) database over the five-year period from 2003 to 2008 (which included one of the worst bear markets for stocks since the Great Depression), the study found: After rising in 2003 and for the next four consecutive years, the average 401(k) retirement account fell 24.3 percent in 2008; the average 401(k) account balance moved up and down with stock market performance, but over the entire five-year time period increased at an average annual growth rate of 7.2 percent, attaining $86,513 at year-end 2008; the median (mid-point) 401(k) account balance increased at an average annual growth rate of 11.4 percent over the 2003-2008 period to $43,700 at year-end 2008. The study also found: The bulk of 401(k) assets continued to be invested in stocks; three-quarters of 401(k) plans included lifecycle funds in their investment lineup at year-end 2008; new employees continued to use balanced funds, including lifecycle funds; 401(k) participants continued to seek diversification of their investments; and participants’ 401(k) loan activity was stable.

Keywords: 401(k) plans, Asset allocation, Employment-based benefits, Life-cycle funds, Pension plan assets, Pension plan loans, Retirement plans, Self-directed investments, Target-date funds

JEL Classification: D31, G11, J26