Roughly $8.4 trillion were held in 401(k)s and other defined contribution (DC) plans at the end of the first half of 2019, according to updated data from the Investment Company Institute (ICI). That represents a significant rebound from just $3.6 trillion in 2008 during the heart of the “Great Recession,” accounts for more than a quarter (28 percent) of all U.S. retirement assets at the end of Q2, and equates 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 six months of 2019. Specifically, only 1.3 percent of participants stopped making contributions to their DC plans in H1, a new all-time low and less than a third of what was seen during the last economic downturn.
This is especially encouraging since an earlier study by ICI and the Employee Benefits Research Institute (EBRI) found that when saving for retirement, it pays to be persistent. Indeed, the duo analyzed the performance differences between 401(k) participants who have consistently stayed invested in a single plan and those who have not. Around 6.1 million of the nearly 27.1 million 401(k) plan participants in the EBRI/ICI database maintained accounts at the end of each year during the sample period. More than a quarter (26.4 percent) of participants in the consistent group had a 401(k) balance greater than $200,000, and another 18.4 percent had between $100,000 and $200,000 in total assets. In contrast, only 10.5 percent of the broader EBRI/ICI 401(k) database, which includes participants and plans entering and leaving, had accounts with more than $200,000, and just 9.0 percent had balances between $100,000 and $200,000. Further, the average 401(k) account balance of the consistent participant group was more than twice that of the broader database ($167,330 vs. $75,358), and the median was nearly five times as large ($82,338 vs. $16,836).
The consistent group’s higher average age and tenure likely helped 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 122.0 percent over the 6-year horizon, and the median account balance jumped by 173.4 percent. Those gains equate to compound annual average growth rates of 14.2 percent and 18.3 percent, respectively. The near record long bull market of the past decade of course played a big role in this growth but consistent 401(k) participants again easily outperformed the broader group thanks to added help from a steadier inflow of contributions and lower overall withdrawal and loan activity (plan leakage). In summary, ICI’s Sarah Holden added that “Tracking the account balances of a consistent group of 401(k) participants highlights the growth potential of this powerful savings tool. 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.”
Sources: ICI, EBRI
Post author: Charles Couch