EBRI Reports on the State of 401(k) Plans

They’ve only been part of the investment landscape for three decades, but 401(k) plans have grown to be the most widespread private-sector employer-sponsored retirement plan in the United States. In 2011, an estimated 51 million American workers were active 401(k) plan participants – and the $3.2 trillion in 401(k) plan assets represented 18% of all retirement assets.

If you’ve ever wondered how your 401(k) investment decisions compare to other investors’ approaches, the Employee Benefit Research Institute (EBRI) provides all the detail you need in the recently published 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2011. It’s a report EBRI publishes each year in collaboration with the Investment Company Institute (ICI).

On average, at year-end 2011, 61 percent of 401(k) participants’ assets was invested in equity securities, including equity funds, the equity portion of balanced funds, and company stock. Fixed-income securities, including stable-value investments and bond and money funds accounted for 34 percent.

As in previous years, participants’ asset allocation varied considerably with age. Younger participants tended to favor equity funds and balanced funds, while older participants were invested more heavily in fixed-income securities such as bond funds, GICs and other stable-value funds, or money funds. Among participants in their 20s, the average allocation to equity and balanced funds was 75 percent of assets, compared with 50 percent of assets among participants in their 60s.

Younger participants also favored target-date funds that pursue a long-term investment strategy using a mix of asset classes that follow a predetermined reallocation, typically shifting in focus from growth to income over time. At year-end 2011,13 percent of 401(k) assets in the database was invested in target-date funds. Participants in their 20s had 31 percent of their 401(k) assets invested in target-date funds, compared to just 11 percent for participants in their 60s.

Balanced funds have also become increasingly popular with younger investors. At year-end 2011, 51 percent of the account balances of recently hired participants in their 20s was invested in balanced funds, compared with 44 percent in 2010, and just 7 percent in 1998.

In another ongoing trend, company stock continued to represent a small plan allocation, remaining at an average of 8 percent in 2011, across all age groups. This share has fallen by more than half since 1999.

To make the most of your 401(k), contribute enough to secure your company’s match and increase your savings as your salary increases. Also, take advantage of catch-up provisions if you are over age 50 and, if you change jobs, rollover your account.