An April Issue Brief from EBRI provided a look at 401(k) trends in 2014 and found that participants are heavily invested in equities. In fact, 401(k) participants at year-end 2014 had more invested in equities than before the financial crisis at the end of 2007.
Two-thirds of 401(k) assets are invested in equity securities, including equity funds, the equity portion of balanced funds and company stocks, and over 90% of plan participants have at least some investment in equities, according to the report. The report found that even though they weren’t invested directly in an equity fund, 83% of participants still had equity exposure through company stock or balanced funds.
“The bulk of 401(k) assets continued to be invested in equities at year-end 2014,” Jack VanDerhei, EBRI research director and co-author of the report, said in a statement. “This is driven in part by younger plan participants, who have higher concentrations in equities. Participants in their 60s remain focused on growth as well, however, allocating 56% of 401(k) plan assets to equity investments.”
Target-date funds were a popular vehicle for participants, particularly younger ones. Almost half of participants, accounting for 18% of assets, were invested in target-date funds, according to the report. Among participants in their 20s, more than 40% of their 401(k) assets were invested in a TDF, compared with 16% of assets owned by participants in their 60s.
“Target-date funds are a popular, convenient investment choice for savers looking for professional asset allocation, portfolio diversification and automatic rebalancing over time,” said Sarah Holden, ICI senior director of retirement and investor research and co-author of the report. “More than 70% of 401(k) plans included target-date funds in their investment lineup in 2014, and recently hired workers, in particular, often invest in these diversified funds.”
The report found two-thirds of recently hired participants were invested in some kind of balanced fund, including target-date funds. Forty-two percent of recently hired workers’ plan assets were invested in a balanced fund, including 35% in TDFs. The report didn’t include data on how many plans with automatic enrollment used a target-date fund as its default investment.
The report found the average account balance increased more than 5% in 2014. However, EBRI noted that the increase “may not accurately reflect the experience of typical 401(k) participants in 2014. To understand changes in 401(k) plan participants’ average account balances, it is important to analyze a sample of consistent participants.” An analysis of a consistent sample of 401(k) participants will be published later this year.
However, an analysis of account balances in the full database found participants in their 30s who had been in the plan for less than five years had an average balance close to $25,000. Unsurprisingly, older, longer tenured participants had higher balances: $275,000 for those in their 60s with more than 30 years in the plan.
Across all plans, the average balance was $76,293; just one-quarter of accounts had a higher balance. The median account balance was $18,127.
Approximately 55 million workers actively participate in a 401(k) plan, EBRI estimates. As of year-end 2014, those plans contained $4.6 trillion, or about 19% of all retirement assets. The report is based on data collected in EBRI’s joint database with the Investment Company Institute, which covers 45% of the full 401(k) universe. There are almost 30 million participants in the EBRI/ICI database, with $1.9 trillion in assets.
— Read 4 Trends That Will Shake Up Workplace Retirement Plans on ThinkAdvisor.