EBRI: 401(k) Participants Not Spooked In 2000

Changes in a participant’s account balance are the result of new contributions by the participant and the employer, investment returns, and withdrawals, borrowing and loan repayments. The relative importance of these three factors varies from individual to individual, EBRI says.

In the group of 8.3 million participants with account balances at year-end 1999 and 2000, the change in account balance varied considerably with age. For example, the average account balance of participants in their 20s rose 26.9% in 2000, while the average account balance of participants in their 60s fell 5.8%. That’s because, for younger participants, contributions are of greater importance in percentage terms than are other factors, since these participants’ account balances tend to be small compared with the amounts typically contributed, EBRI says.

The database also shows that there was essentially no change in participant loan activity in 2000, despite financial market volatility. Only 18% of eligible participants had outstanding loans at the end of 2000, and for those with outstanding loans at the end of 2000, the level of the unpaid balance represented 14% of the account balance, net of the unpaid loan balance.

Another of the report findings is that 401(k) plan participants in aggregate did not experience or make significant changes in their 401(k) accounts during 2000, despite the fact that equity markets experienced substantial volatility, and broad market indexes witnessed their largest annual declines in nearly 20 years.