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December 09, 2001 at 07:00 PM
401(k) Balances Were Steady In 2000, Despite Market Volatility
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Despite experiencing losses on equity returns in 2000, a substantial number of 401(k) participants did not alter their account activity in that year, even though many of them have plan assets invested directly or indirectly in the stock market.
These are findings from a recently released issue brief of the asset allocation, account balances and loan activity of 11.8 million 401(k) participants by the Employee Benefits Research Institute, a nonpartisan public policy research organization based in Washington, and the Investment Company Institute, also based in Washington.
According to the brief, 51% of plan balances were invested in equity funds, 19% in company stock, and 8% in balanced funds. The average account balance of participants who held accounts in both 1999 and 2000 decreased by 0.1% in 2000.
The finding does not surprise Jack VanDerhei, research director of the EBRI Fellows Program and co-author of the issue brief. Since people who invest in a 401(k) plan are long-term investors, they tend to focus on long-term results and are therefore not likely to make changes to their asset allocation every time the market takes a downturn.
Co-author Sarah Holden, senior economist in the research department at ICI, agrees. She suspects account activity has remained largely unchanged from 1999 to 2000 “because 401(k) participants are long-term investors who are not ruffled by market volatility; they stick to their long-term goal of saving for retirement.”
The volatility in the financial markets in 2000 also had little impact on plan participants loan behavior, according to the brief. At year-end, only 18% of eligible participants had outstanding loans.
