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August 14, 2001
401(k)s Down - But Not by Much
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The latest study, conducted by the Employee Benefit Research Institute and the Investment Company Institute, concluded that the average 401(k) balance fell only 0.1 percent in 2000, despite a much worse performance by U.S. stocks.
The other study, released last month by Cerulli Associates, said the average 401(k) balance dipped by more than 10 percent in 2000.
EBRI, a nonprofit group based in Washington, D.C., said it also found that individual balances varied greatly on the basis of the participant's age.
Participants in their 20s posted average 401(k) account growth of 26.9 percent last year, while participants in their 50s saw their average account balance decline by 2.3 percent.
The EBRI-ICI database holds data from a variety of plan record keepers and administrators, covers all size plans, and is representative of the 401(k) plan participant universe.
EBRI says the database is unique because it tracks account activity on a year-to-year basis for individual participants, rather than collect sample data from different participants each year. The data for 1999 and 2000 involves 8.3 million plan participants.
At year-end 2000, the average account balance of those 8.3 million participants stood at $58,774, or only 0.1 percent below the average of $58,850 at year-end 1999.
EBRI cautioned that even an aggregate figure relating to the participants who were present in both years does not tell the whole story. That's because a change in a participant's account balance is the sum of three factors:
- New contributions by the participant and the employer.
- Total investment return on account balances, which depends
on the performance of financial markets and on the allocation of assets in the individual's account.
- Withdrawals, borrowing, and loan repayments.
The relative importance of these three factors varies from individual to individual, and in the consistent group of 8.3 million participants in the EBRI/ICI database, the change in account balance varied considerably with age.
For example, the average account balance of participants in their 20s rose 26.9 percent in 2000, while the average account balance of participants in their 60s fell about 5.8 percent.
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. In contrast, for older participants, investment return is of greater importance because their account balances tend to be large relative to their annual contributions.
Use of a consistent group of participants removes the effect on the overall average account balance caused by new participants entering and by exiting participants. Preliminary analysis of the average account balance (net of plan loans) for all participants in the EBRI/ICI databases-in addition to those present in both years-shows a decline of 12 percent in 2000 to $48,988 from $55,502 in 1999. However, this average decline does not measure how the balance of the "typical" 401(k) participant changed in 2000.