Consistent 401(k) Savers More Likely to Reach Savings Goal

The average 401(k) plan account balance of workers who participated consistently in one 401(k) plan increased significantly over the four-year period ending at year-end 2014, according to data published by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

The study, “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2010–2014,” examines the accounts of about 8.8 million “consistent participants”—those who remained active in the same 401(k) plan for the four-year period covering year-end 2010 through year-end 2014. It finds that average account balances increased during this period for consistent participants in all age cohorts. This growth reflects contributions of employers and workers, in addition to investment returns, withdrawals, and loans.

“Looking at average balances for all 401(k) accounts does not reflect the system’s full potential for workers building their retirement resources,” says Sarah Holden, ICI’s senior director of retirement and investor research. “By studying the experience of workers who participate consistently across several years, this study shows more accurately the extent to which steady, paycheck-by-paycheck saving and compounding investment returns can help workers accumulate a sizable retirement nest egg.”

The study’s analysis of the millions of accounts that remained in the EBRI/ICI database for an extended period gives a truer picture of the accumulation potential of 401(k)s than an analysis focused on the average account balances of all 24.9 million participants in the database. This is because 401(k) participants enter and leave the database as they change jobs or retire, and plan sponsors enter and leave the database as they change recordkeepers.

The average 401(k) plan account balance of the consistent participants grew at a compound annual average rate of 15.5%, from 2010 through year-end 2014, to $130,493. This level exceeded the average account balance among all participants in the EBRI/ICI 401(k) database, reflecting the higher age and tenure of the consistent group, and the ability to track an extended period of ongoing participation.

The median 401(k) plan account balance for consistent participants increased at a compound annual average growth rate of 19.7% between 2010 and year-end 2014, to $56,653—more than three times the median balance of all participant accounts in the EBRI/ICI database.

Nearly one in five (19.5%) of the consistent participants had more than $200,000 in their 401(k) plan accounts at their current employers, while another 16.1% had accumulated between $100,000 and $200,000.

The study also found in the consistent participant analysis, as in EBRI/ICI’s broader cross-sectional analysis, about two-thirds of 401(k) participants’ assets were invested in equities at year-end 2014—whether through equity funds, the equity portion of target-date and non–target-date balanced funds, or company stock.