Consistent participation leads to sizable 401(k) gains, EBRI/ICI study finds

A new longitudinal analysis from the Employee Benefit Research Institute and the Investment Company Institute is shedding light on the wealth-building potential of steady 401(k) plan participation, with findings that could inform both policymakers and financial advisors.

The study, which tracked 2.7 million “consistent participants” who maintained 401(k) accounts at the same employer from year-end 2019 through year-end 2023, found that these savers saw their average account balances nearly double over the four-year period.

According to the new report, the average balance for consistent 401(k) plan members increased from $82,274 to $148,092, representing a compound annual growth rate of 15.8%. The median account balance for this group rose even faster, climbing at a 25.9% annual rate to reach $58,898 by the end of 2023.

By comparison, the broader population of 401(k) savers saw more modest gains. At year-end 2023, the average account balance for all participants in the EBRI/ICI 401(k) database was $79,000, while the median was $15,800, underscoring the impact of regular, uninterrupted participation on retirement savings outcomes.

Younger workers and those with smaller starting balances experienced the largest percentage gains. For participants in their twenties, average account balances grew at a compound annual rate of 56.1% between 2019 and 2023. The study chalked up that outsized growth to the relative size of contributions compared to account balances, as well as the effects of compounding over time.

Those results mirror separate retirement plan research by Fidelity, which pointed to steady investment and savings behaviors as the determining factor behind the steady rise of 401(k) millionaires.

The EBRI/ICI analysis also highlights the role of market performance. While balances rose in most years, 2022 was an exception, reflecting declines in both stock and bond markets. Still, the overall trend was up and to the right, with the report noting that “the average 401(k) plan account balance for consistent participants rose each year from year-end 2019 through year-end 2023 – with the exception of 2022, a year of stock and bond market declines.”

Asset allocation patterns among consistent participants remained relatively stable over the period. At year-end 2023, the research found more than 70% of assets were invested in equities, either through equity funds, the equity portion of target date funds, non-target date balanced funds, or company stock. Unsurprisinggly, younger participants tended to have higher concentrations in equities than their older counterparts, with those in their twenties allocating nearly 90% of their balances to equities, compared to about 61% for those in their sixties.

The use of target date funds also showed little change, with about two-thirds of consistent participants holding at least some target date fund investments at both the start and end of the study period. Among those fully invested in target date funds at year-end 2019, more than 90% remained fully invested in these funds by year-end 2023 – a sign of persistent investment behavior across age groups.

Withdrawals and loans had a relatively minor impact on account balances, with the report noting that “very few active 401(k) plan participants take withdrawals,” and that loan activity was more common among participants in their thirties, forties, or fifties than among the youngest or oldest savers.