401(k) Participants Are Amassing Significant Wealth

9/14/17 8:00 AM

iStock-501133903.jpgResearchers at the U.S. Census Bureau estimated that roughly eight in ten Americans work for companies that sponsor a 401(k) or similar tax-deferred retirement plan but just 41 percent of employees actually utilize these savings vehicles. Although that implies that only about a third of employed Americans are regularly contributing to a workplace retirement account, the amount of money that these individuals have been able to set aside is substantial.

For example, an updated study from the Investment Company Institute (ICI) calculated that $7.3 trillion were held in 401(k)s and other defined contribution (DC) plans at the end of the first quarter of 2017 (most current data available). That was a significant rebound from just $3.5 trillion in 2008 during the heart of the “Great Recession,” accounted for more than a quarter (28 percent) of all U.S. retirement assets at the end of Q1, and equated to almost one-tenth of Americans’ aggregate financial assets.


The ICI report also revealed that the vast majority of DC participants in America continued to save using their workplace-provided retirement plans during the first three months of 2017. Specifically, only 1.1 percent of participants stopped making contributions to their DC plans in Q1, in line with the average for the current business cycle and well below what was seen during the recession. Further, hardship withdrawals were taken by just 0.4 percent of DC plan participants in Q1, matching the record low, and only 1.3 percent of participants made any sort of withdrawal.

As for borrowing activity, just 16.6 percent of all 401(k) plan participants had a related loan outstanding at the end of the first quarter of 2017, the best reading since 2009. A recent seasonal pattern, though, suggests that 401(k) borrowing may pick up later this year. However, a tightening labor market and an uptick in wage growth could provide Americans with more disposable income and in turn lessen the need to tap into retirement assets early.



Sources: Bloomberg, U.S. Census Bureau, Investment Company Institute, Employee Benefit Research Institute

Post author: Charles Couch