Financial Planning, Retirement

Consistent 401(k) Participants Continue To Outperform

10/13/20 8:00 AM

Have your retirement assets more than doubled since the “Great Recession?” There is a good chance that the answer is “yes” if you have been an ongoing participant in a 401(k) savings plan. At least that is what a recently updated study from the Employee Benefits Research Institute (EBRI) and the Investment Company Institute (ICI) suggests after analyzing the performance differences between 401(k) participants who have consistently stayed invested in a single plan and those who have not.

Indeed, 1.9 million 401(k) plan participants in the EBRI/ICI database maintained accounts at the end of each year from 2010 through 2018 (most current data available). By the end of the sample period more than a quarter (28 percent) of participants in this consistent group had a 401(k) balance greater than $200,000, and another 19 percent had between $100,000 and $200,000 in total assets. In contrast, only 10 percent of the broader database, which includes participants and plans entering and leaving, had accounts with more than $200,000, and just 9 percent had balances between $100,000 and $200,000. Further, the median 401(k) account balance for the consistent participant group was several multiples larger than what was observed in the broader database.


The consistent group’s higher average age and tenure of course played a role but ongoing participation still appeared to have provided a noticeable boost to asset growth over the sample period. In fact, the average account balance for consistent participants increased by 183 percent from year-end 2010 through year-end 2018, and the median account balance jumped by 259 percent. Those gains equate to compound annual average growth rates of 14 percent and 17 percent, respectively, over the 8-year horizon. The multi-year uptrend in the stock market during the sample period also played a significant role in this growth, especially considering that nearly two-thirds of consistent 401(k) plan participants’ assets were invested in equity, target-date, or balanced funds.

However, consistent 401(k) participants again easily outperformed the broader group thanks to added help from a steadier inflow of new savings, a greater time horizon to benefit from employers’ matching contributions, and lower overall withdrawal and loan activity (plan leakage). In summary, ICI’s Sarah Holden added that “These results again confirm the potential of 401(k) plans and powerfully demonstrate why they are a vital savings vehicle. Tracking the account balances of a consistent group of 401(k) participants provides evidence of the ability of the 401(k) system to build a significant nest egg, helping millions of Americans save for retirement.”



Sources: EBRI, ICI

Post author: Charles Couch