Consistent Retirement Savings and Investing Leads to Higher Balances

The average 401(k) plan account balance of “consistent 401(k) participants”—those who remained active in the same 401(k) plans from year-end 2010 through year-end 2016—more than doubled in that period, according to data published by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).

According to EBRI and ICI, it is important to study consistent participants because the average 401(k) account balance for the database as a whole can be buffeted by 401(k) participants entering and leaving the database as they change jobs or retire, and by plan sponsors entering and leaving the database as they change recordkeepers. They point out that 401(k) account balance growth reflects contributions of employers and workers, in addition to investment returns, and varies with participants’ asset allocation, withdrawals and loan activity.

The study, “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2010–2016,” examines the accounts of 6.1 million consistent 401(k) participants. The analysis finds that average 401(k) plan account balances for consistent participants increased by 122% during this period, with all age groups registering significant increases. The average 401(k) plan account balance of the consistent participants grew at a compound annual average rate of 14.2%, to $167,330. This was more than double the average account balance of $75,358 among all participants in the EBRI/ICI 401(k) database at year-end 2016.

Among the group of consistent participants, 26.4% had more than $200,000 in their 401(k) plan accounts at their current employers, while another 18.4% had accumulated between $100,000 and $200,000.

About two-thirds of 401(k) participants’ assets were invested in equities at year-end 2016—whether through equity funds, the equity portion of target-date and non–target date balanced funds, or company stock. Asset allocations were broadly similar across the consistent participant sample and participants in the broader EBRI/ICI 401(k) database at year-end 2016.

“Tracking the account balances of a consistent group of 401(k) participants highlights the growth potential of this powerful savings tool,” said Sarah Holden, ICI’s senior director of retirement and investor research. “These results demonstrate the benefit of persistent saving and underscore how 401(k) plans have become such a vital savings vehicle for millions of Americans.”