Frequently Asked Questions About 401(k) Plans

How large is the 401(k) plan market?
At year-end 2006, Section 401(k) plans held an estimated $2.7 trillion in assets and represented approximately 17 percent of the $16.4 trillion U.S. retirement market. Assets in 401(k) plans have increased on average 13 percent per year, from $385 billion in 1990.

401(k) Plan Assets
(billions of dollars)

e=estimated
Sources: ICI, U.S. Department of Labor, and Federal Reserve Board

Where do 401(k) participants invest their money?
About 55 percent of 401(k) plan assets were held in mutual funds at year-end 2006. Other institutions, such as insurance companies and banks, held the remaining 401(k) plan assets.

What role do retirement account investments play in the mutual fund industry?
Mutual fund assets held in retirement accounts (defined contribution plan accounts and IRAs) stood at $4.1 trillion at the end of 2006, or 39 percent of overall mutual fund assets. Fund assets in 401(k) plans stood at $1,485 billion, or 14 percent of total mutual fund assets at year-end 2006.

What is the average 401(k) plan account balance?
The average account balance (net of plan loans) was $58,328 at year-end 2005, according to research released as part of the Employee Benefit Research Institute (EBRI) and ICI Participant-Directed Retirement Plan Data Collection Project, the largest database on participants in 401(k) plans.

How have 401(k) participants allocated their investments?
Participants, on average, had about 68 percent of their 401(k) plan balances invested directly or indirectly in equity securities - the sum of equity funds, company stock, and the equity portion of balanced funds. At year-end 2005, 48 percent of plan balances were invested in equity funds (which include mutual funds and other pooled investments), 13 percent in company stock, and 11 percent in balanced funds. Thirteen percent of plan balances were invested in guaranteed investment contracts (GICs) and other stable value funds, 10 percent in bond funds, and 4 percent in money funds.

Does age affect a participant's asset allocation?
The asset allocation of participant account balances varies considerably with the age of the 401(k) participant. Younger participants tend to concentrate their assets in equity funds, while older participants tend to invest more in fixed-income securities, such as GICs and bond funds. At year-end 2005, participants in their twenties had invested more than half of their account balances in equity funds, while those in their sixties held nearly 387 percent in equity funds.

What role does borrowing play in 401(k) plan investing?
Most 401(k) plan participants do not borrow against their balances. While 85 percent of participants were in 401(k) plans that offer loans at year-end 2005, only 19 percent of those eligible for loans had loans outstanding.

What is the average outstanding loan balance through 401(k) plans?
For those with outstanding loans at the end of 2005, the average unpaid loan balance was $6,821. This represents about 13 percent of the participant's remaining account balance. Loan ratios (outstanding loan balance as a percentage of the remaining account balance) were higher for participants in their twenties (24 percent) and thirties (19 percent) and lower for participants in their fifties (10 percent) and sixties (8 percent).

Additional 401(k) Resources

• The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, Fundamentals (November 2006)
• 401(k) Plans: A 25-Year Retrospective, Perspective (November 2006)
• Appendix: Additional Information for a 25-Year 401(k) Retrospective, Perspective (November 2006)
• 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2005, Perspective (August 2006)
• Appendix: Additional Figures for the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project for Year-End 2005, Perspective (August 2006)
• The U.S. Retirement Market, 2005, Fundamentals (July 2006)
• Appendix: The U.S. Retirement Market, 2005, Fundamentals (July 2006)
• The Role of IRAs in Americans' Retirement Preparedness, Fundamentals (January 2006)
• Appendix: Additional Data on IRA Ownership in 2005, Fundamentals (January 2006)
• 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2004, Perspective (September 2005)
• Appendix: Additional Figures for the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project for Year-End 2004, Perspective (September 2005)
• Mutual Funds and the U.S. Retirement Market in 2004, Fundamentals (August 2005)
• The Influence of Automatic Enrollment, Catch-Up, and IRA Contributions on 401(k) Accumulations at Retirement, Perspective (July 2005)
• 401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2003, Perspective (August 2004)
• Appendix: Additional Figures for the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project for Year-End 2003, Perspective (August 2004)
• Can 401(k) Accumulations Generate Significant Income for Future Retirees? Perspective (November 2002)
• Contribution Behavior of 401(k) Plan Participants, Perspective (October 2001)
• 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, ICI Research Series (Spring 2000)

This site also includes a section devoted to retirement security issues.

June 2007