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October 18, 2001
Average 401(k) Contribution: 6.8%
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EBRI and ICI say their analysis confirmed earlier research showing that 401(k) participants tend to contribute more when the plan allows participants to take out loans from their accounts. Total contribution rates are higher in plans with employer contributions.
The average total contribution rate was 10 percent of salary for employees in plans offering an employer contribution, compared with 7.4 percent for those in plans not offering an employer contribution.
The analysis also found that pre-tax contribution activity varies widely. In addition, it appears that among participants earning at least $40,000 but not contributing at statutory limits, plan-imposed contribution limits restrict more than half of them from contributing up to the maximum amount permitted by the tax code.
EBRI and ICI have collaborated during the past five years inthe collection of data on 401(k) plan participants from some of their members that serve as plan record keepers and administrators, and have developed the largest database of its kind on activity by 401(k) plan participants.
The EBRI/ICI 401(k) contribution analysis, titled "Contribution Behavior of 401(k) Plan Participants," examines the 1999 contribution behavior of 1.7 million 401(k) plan participants drawn from the EBRI/ICI database.
EBRI is a private, nonprofit, nonpartisan public policy research
organization based in Washington, DC, and does not lobby and does not take positions on legislative proposals.
The Investment Company Institute (ICI) is the national association of the American investment company industry.
Other key findings of the EBRI/ICI 401(k) contribution analysis:
- Eighty-five percent of participants in the sample made only
before-tax contributions to their plans, and 97 percent of alldollars contributed by employees were contributed on a before-tax basis. On average, participants contributed 6.8 percent of their salaries on a before-tax basis.
- Before-tax contribution activity varied among participants. About 61 percent of participants contributed more than 5 percent of their salaries on a before-tax basis and about 21 percent set aside more than 10 percent of their salaries on a before-tax basis.
- Eleven percent of participants analyzed in this study earning more than $40,000 a year contributed at the $10,000 before-tax IRC limit in 1999. Thirteen percent of participants with salaries between $70,000 and $80,000 contributed at the cap, and 18 percent of those with salaries between $80,000 and $90,000 were at the limit. However, it appears that among participants not contributing at the IRC limit, 52 percent could not have done so because of formal plan-imposed contribution limits below the IRC limit.
- Older participants tended to contribute a higher percentage of their salaries to plans than did younger participants, even after factoring out differences in salary and job tenure. Participants tended to increase the share of their salary (and amounts) contributed to their 401(k) plan as their salaries rose until salaries reached $80,000. For individuals with salaries above $80,000, before-tax contribution rates (though not the amounts contributed) tended to fall as salaries rose because IRC, and possibly plan sponsor, contribution limits became binding for some participants.
- Giving employees the option of borrowing from their 401(k) accounts increased participant contribution rates. On average, a participant in a plan offering loans appeared to contribute 0.6 percentage point more of his or her salary to the plan than a participant in a plan with no loan provision.
- Total contributions-the sum of employee and employer contributions-were higher for participants who received an employer contribution as part of their 401(k) plans than for those who did not. The average total contribution rate was 10 percent of salary for employees in plans offering an employer contribution, compared with 7.4 percent for those in plans not offering an employer contribution.
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