If any workers (and employers, for that matter) are hemming and hawing at your next education and enrollment meeting, remind them of the following 10 facts to help them along, courtesy of the Investment Company Institute.
1). 401(k) plans are the largest share of DC plan assets, with more than two-thirds of DC plan assets held in 401(k) plans. Americans held $6.7 trillion in DC plans at year-end 2015, accounting for 28 percent of the $24.0 trillion in retirement assets and about 10 percent of household financial assets. Sixty nine percent of DC plan assets, or $4.7 trillion, were held in 401(k) plans, accounting for 19 percent of all U.S. retirement assets.
2). More than one-third of 401(k) plan participants are younger than 40. At year-end 2014, 37 percent of 401(k) participants were in their twenties or thirties, 26 percent were in their forties, 26 percent were in their fifties, and 11 percent were in their sixties. Reflecting the life cycle of retirement saving, 401(k) participants tend to be in their peak earning and saving years and are slightly older than the broad population of private sector workers.
3). Households from all income groups own DC plan accounts. The majority of U.S. households with DC retirement plan accounts had moderate incomes. Fifty-three percent of households owning DC plan accounts in mid-2015 had incomes between $25,000 and $99,999. Forty-one percent of households with DC assets reported incomes of $100,000 or more and 6 percent had incomes less than $25,000.
4). Households appreciate the tax treatment and investment features of their DC plans. Most DC plan account-owning households agreed that employer-sponsored retirement accounts helped them “think about the long term, not just my current needs” (91 percent), and that “payroll deduction makes it easier for me to save” (91 percent). Overall, 81 percent of households with DC plan accounts agreed that “the tax treatment of my retirement plan is a big incentive to contribute.”
5). Most 401(k) plan participants receive plan contributions from their employers. In 2013, employers made contributions in 76 percent of 401(k) plans. Because larger 401(k) plans are more likely to have employer contributions, 88 percent of 401(k) plan participants were in plans with such contributions.
6). 401(k) plan account balances rise with participant age and length of time on the job. Examining the interaction of both age and tenure with 401(k) plan account balances reveals that, for a given age group, average 401(k) plan account balances tend to increase with tenure.
7). 401(k) plans offer participants a wide array of investment options. Domestic equity funds, international equity funds, and domestic bond funds were the most likely investment options to be offered in 401(k) plans in 2013. Nearly all plans offered these types of funds, which can be mutual funds, collective investment trusts, separate accounts, or other pooled investment products. Equity funds were the most common investment option, with 401(k) plans offering 13 funds on average, of which 10 were domestic equity funds and three were international equity funds.
8). Equities figure prominently in 401(k) plans, and younger 401(k) plan participants are highly engaged in equity investing. At year-end 2014, 43.2 percent of 401(k) plan participants’ account balances were invested in equity funds. Another 18 percent of 401(k) assets were invested in target date funds, and nearly half of all 401(k) plan participants had invested at least some of their accounts in target date funds. Non–target date balanced funds accounted for another 6.9 percent of 401(k) plan assets. Altogether, equity securities—equity funds, the equity portion of balanced funds, and company stock—represented 66.2 percent of 401(k) plan participants’ assets.
9). 401(k) plan participants have concentrated their assets in lower-cost funds. At year-end 2015, 60 percent of 401(k) plan assets were invested in mutual funds, mainly equity mutual funds (60 percent of 401(k) mutual fund assets or 36 percent of all 401(k) plan assets). 401(k) plan participants investing in mutual funds tend to invest in lower cost funds. In 2015, the simple average expense ratio for equity mutual funds offered in the United States was 1.31 percent. However, taking into account both the funds offered in 401(k) plans and the distribution of assets in those funds, 401(k) plan participants who invested in equity mutual funds paid less than half that amount, 0.53 percent on average.
10). Fewer than one in five 401(k) plan participants have loans outstanding. Data from the 2014 EBRI/ICI 401(k) database indicate that 54 percent of 401(k) plans offered a plan loan provision to participants, and 87 percent of participants were in plans offering loans. However, relatively few participants made use of this borrowing privilege. Factoring in all 401(k) participants with and without loan access in the database, only 17 percent had loans outstanding at year-end 2014.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
