ICI Report: How Participants Save in Their 401(k)

The Investment Company Institute (ICI) with data from the Employee Benefits Research Institute (EBRI) recently published a new report highlighting 10 insights on 401(k) plans. Drawing from the organizations’ combined database, “10 Important Facts About 401(k) Plans” focuses on 401(k) balances, fund diversification and participant demographics among other topics.

1) 410 (k) Plans Hold the Largest Share of DC Plan Assets

Sixty-nine percent of defined contribution (DC) plan assets were held in 401(k) plans amounting to $4.7 trillion at the end of 2015, according to the Investment Company Institute (ICI). 403(b) plans held $.9 trillion in assets. The total amount held in defined contribution plans was $6.7 trillion, and total retirement assets in the U.S. accounted for $24 trillion, the firm found.

 2) More Than One-Third of 401(k) Plan Participants Are Younger Than 40

At year-end 2014, 37% of 401(k) participants were in their 20s or 30s, 26% were in their 40s, 26% were in their 50s, and 11% were in their 60s, the ICI found. 401(k) plan participants are slightly older than the broad population of private-sector workers, according to the report.  

3) Households From All Income Groups Hold DC Plan Accounts

Fifty-three percent of U.S. households that own a defined contribution plan account have incomes ranging from $25,000 through $99,999. Forty-one percent reported incomes of more than $100,000, while 6% had incomes less than $25,000.

4) Households Appreciate the Tax Treatment and Investment Features of Their DC Plans

Eighty-one percent of households with DC plan account-holders agreed that “the tax treatment of my retirement plan is a big incentive to contribute,” ICI found. Ninety-one percent of such account holders said their retirement accounts allow them to “think about the long term, not just my current needs.” The same percentage said, “payroll deduction makes it easier for me to save.”

 5) Most 401(k) Plan Participants Receive Contributions From Their Employers

Seventy-six percent of 401(k) plans received employer contributions in 2013, according to the ICI. The firm reports that “because larger 401(k) plans are more likely to have employer contributions, 88% of 401(k) plan participants were in plans with such contributions.”

NEXT: 401(k) Account Balances Rise With Participant Age and Length of Time on the Job

6) 401(k) Account Balances Rise With Participant Age and Length of Time on the Job

The average account balance of participants in their 60s with up to two years of tenure was $34,673, compared with $274,043 for participants in their 60s with more than 30 years of tenure. Similarly, ICI found, the average account balance of participants in their 40s with up to two years of tenure was $19,697, compared with $159,118 for those in their 40s with more than 20 years’ tenure.

7) 401(k) Plans Offer Participants a Wide Array of Investment Options

The most common investment options to be offered with 401(k) plans were equity funds, with 13 of these funds on average being offered, ICI found. Ten on average were domestic equity funds, and three were international equity funds. Target-date funds (TDFs) were the next most common option, with an average of nine funds being offered among plans that include TDFs.

In 2013, nearly all plans offered domestic equity funds, international equity funds and domestic bond funds, which may be mutual funds, collective investment trusts (CITs), separate accounts or other pooled investment products.

8) Equities Figure Prominently in 401(k) Plans, and Younger Plan Participants Are Highly Engaged in Equity Investing

At year-end 2014, 43.2% of 401(k) plan participants’ account balances were invested in equity funds, ICI found. Another 18% of assets were invested in TDFs. Nearly half of all 401(k) plan participants had invested at least some of their accounts in TDFs. In total, equity securities—equity funds, the equity portion of balanced funds, and company stock—represented 66.2% of 401(k) plan participants’ assets.

More 401(k) plan participants held equities at year-end 2014 than year-end 2007, particularly younger participants. This same group was more likely to hold equities and high concentrations in equities at year-end 2014 than year-end 2007, according to ICI.

The firm reports three-quarters of 401(k) plan participants in their 20s had over 80% of their account balances invested in equities at year-end 2014, compared with less than half at year-end 2007. Only 8% of the youngest participants held no equities at year-end 2014 compared with 19% at year-end 2007.

9) 401(k) Plan Participants Have Concentrated Their Assets in Lower-Cost Funds

At year-end 2015, 60% of 401(k) plan assets were invested in mutual funds, mainly equity mutual funds, according to ICI. In 2015, the simple average expense ratio for equity mutual funds offered in the U.S. was 1.31%. However, ICI notes, when taking into account both the funds offered in 401(k) plans and the distribution of assets in those funds, 401(k) plan participants who invested in equity mutual funds paid less than half that amount or 53% percent on average.

10) Less Than One in Five 401(k) Plan Participants Have Loans Outstanding

Fifty-four percent of 401(k) plans offered plan loan provisions to participants, according to the EBRI/ICI database. ICI also reports that 87% of participants were in plans offering loans. Factoring in all 401(k) participants with and without loan access in the database, however, only 17% had loans outstanding at year-end 2014. 

The full report can be found online here.