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401(k) plan asset allocation, account balances, and loan activity
J VanDerhei1, R Galer, C Quick
1Temple University, USA.
EBRI Issue Brief
|July 1, 1999
Summary
This study reveals that 401(k) plan participants invest over two-thirds of their assets in equities, with allocation varying significantly by age. Employer stock options influence investment choices and overall balance growth.
Area of Science:
- Retirement Planning
- Behavioral Finance
- Personal Finance
Background:
- The Employee Benefit Research Institute (EBRI) and Investment Company Institute (ICI) collaborated on the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project.
- This project gathered data from 6.6 million participants across 27,762 401(k) plans in 1996, representing nearly $246 billion in assets.
Purpose of the Study:
- To analyze the asset allocation, contribution behaviors, and account balances of 401(k) plan participants.
- To understand how factors like age and plan offerings influence investment decisions.
Main Methods:
- Analysis of a comprehensive dataset of 401(k) plan participant information from 1996.
- Examination of demographic data, contributions, balances, asset allocation, and loan information.
Main Results:
- Over two-thirds of 401(k) plan assets were invested in equities (including employer stock).
- Asset allocation varied by age, with younger participants holding more equities than older participants.
- Plan features like company stock and guaranteed investment contracts (GICs) influenced participant investment choices.
Conclusions:
- 401(k) asset allocation is heavily weighted towards equities, influenced by participant age and plan design.
- Long-term participation in 401(k) plans, particularly with employer stock, can lead to substantial retirement savings.
- The EBRI/ICI dataset provides a robust view of 401(k) participant behavior.