If all 401(k) participants were a single investor, he or she would be a moderate-risk investor with an asset allocation very close to the classic middle-of-the-road portfolio of 60% equities, 30% bonds and 10% cash, according to the December 2013 Issue Brief from the Employee Benefits Research Institute (EBRI).
Highlights of the brief included:
- The bulk of 401(k) assets continued to be invested in stocks. On average, at year-end 2012, 61% of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. A third was in fixed-income securities such as stable-value investments and bond and money funds.
- 72% of 401(k) plans included target-date funds in their investment lineup at year-end 2012. At year-end 2012, 15% of the assets in the EBRI/ICI 401(k) database were invested in target-date funds and 41% of 401(k) participants in the database held target-date funds.
- More new or recent hires invested their 401(k) assets in balanced funds, including target-date funds. For example, at year-end 2012, nearly 54% of the account balances of recently hired participants ages 20-29 were in balanced funds, compared with 51% in 2011, and about 7% in 1998. A significant subset of that balanced fund category is in target-date funds. At year-end 2012, 43% of the account balances of recently hired participants ages 20-29 were invested in target-date funds, compared with 40% at year-end 2011.
- 401(k) participants continued to seek diversification of their investments. The share of 401(k) accounts invested in company stock edged down to 7% at year-end 2012. This share has fallen by more than half since 1999. Recently hired 401(k) participants contributed to this trend: they tended to be less likely to hold employer stock.
- Participants’ 401(k) loan activity remained steady, although loan balances increased slightly in 2012. At year-end 2012, 21% of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, unchanged from year-end 2011, 2010, and 2009, but up from 18% at year-end 2008. Loans outstanding amounted to 13% of the remaining account balance, on average, at year-end 2012, down one percentage point from year-end 2011. Nevertheless, loan amounts outstanding increased slightly from the previous year.
- The year-end 2012 average 401(k) account balance in the database was 8.4% higher than the year before. That figure may not accurately reflect the experience of typical 401(k) participants in 2012, however. To understand changes in 401(k) participants’ average account balances, it is important to analyze a sample of consistent participants. As with previous EBRI/ICI updates, analysis of a sample of consistent 401(k) participants (those that have been in the same plan since 2007) is expected to be published in 2014.
© 2013 EBRI.