401k Plan and Market Statistics
Helpful information and statistics about 401k plans and markets.
To help you in writing about 401k plans, the following statistics can provide you with insight and background.
How large is the 401k plan market?5
401k plans held an estimated $1.75 trillion in assets at year-end 2001 and represented approximately 16 percent of the $10.9 trillion U.S. retirement market, according to the Investment Company Institute. Assets in 401k plans have increased on average 15 percent per year, from $385 billion in 1990. According to estimates by Cerulli, there were nearly 400,000 401k plans at the end of 2001 with about 45 million participants, up from 97,614 plans with 19.5 million participants in 1990.
Employee Contribution Levels3
Pre-tax deferrals averaged 5.3% of pay for lower-paid and 6.4% of pay for higher-paid employees. Among contributing employees, the average dollar amount contributed by participants in 2001 was $3,514.
Employer Contributions3
The average company contribution was 4.0% of payroll. Company contributions were highest in profit sharing plans (8.1% of payroll) and lowest in 401(k) plans (2.5% of payroll). Company contributions averaged 19.7% of total net profit for profit sharing plans and 11.8% of total net profit for 401(k) plans.
Numerous formulas are utilized to determine company contributions. In plans permitting participant contributions, the most common formula is a fixed match only, present in 29.1% of plans (including plans with safe harbor matches). The most common type of fixed match is $.50 per $1.00 up to the first 6% of pay, present in 26.0% of plans that have fixed matches. The most common type of company contribution for profit sharing plans is a discretionary profit sharing contribution only, which is present in 70.9% of plans.
Matching contributions are most frequently made on a payroll period basis (56.8% of plans), while nonmatching contributions are most often made annually (71.3% of plans).
Investment Options3
69.8% of plans offered 10 or more fund options for participant contributions in 2001, up from 61.5% of companies in 2000, and 51.2% of companies in 1999.
On average, 14 funds were available for company contributions and 15 funds were available for participant contributions in 2001.
The most commonly offered fund options for participant contributions were actively managed domestic equity funds (present in 76.1% of plans), actively managed international equity funds (present in 71.4% of plans), indexed domestic equity funds (63.9% of plans), and balanced stock/bond funds (63.8% of plans).
Employee Participation Rate3
78.0% of eligible employees held balances in their 401k plans.
Why do Employee Participate in Their 401k?1
The vast majority of 401k plan participants enrolled in their current plans to save for retirement (Figure 1). In addition, the vast majority indicated that participation in the 401k plan led them to save more for retirement than they would have otherwise. A large number of participants expected their 401k plan assets to be their main source of income in retirement.
Company match, tax deferral, and payroll deduction features also were important in the decision to participate.
Workers choosing not to join their employers’ 401k plans primarily cited financial constraints as the reason for nonparticipation (Figure 1). Many of these workers said they did not have the extra money to save and expected to rely upon other resources, including employment, for income in retirement. The vast majority of nonparticipants said they would be likely to join the 401k plan if the employer matching contribution were increased or if they had higher salaries.
| Most Frequently Mentioned Reasons for Participating and Not Participating in 401k Plans
(based upon percent of respondents citing reason,in descending order) |
| Reasons for Participating |
Reasons for Not Participating |
| 1. Concern about funding retirement |
1. No extra money to save |
| 2. Company match |
2. Saving for retirement in some to her way |
| 3. Tax-deferred status of contributions |
3. Dislike plan features |
| 4. Payroll deduction feature |
4. Confused about plan features |
| Table 1 |
|
Eligibility2
How quickly do employers allow new employees to join their 401k?
|
Immediate (one month or less) |
37.0% |
|
3 months or 90 days |
13.2% |
|
6 months or 1000 hours |
15.3% |
|
1 year |
25.1% |
|
Other |
9.4% |
| Table 2 |
|
Participant Education
Companies' ranked the following top reasons for providing participant education: ranked #1 - increase participation (46.4%), ranked #2 - increase deferral rate (36.5), ranked #3 - more diversification (31.7%), and ranked #4 - 404(c) compliance (44.9%).4
To accomplish these goals, companies use a variety of approaches. The most common are print materials (92.0%), Internet (44.6%) and slides/transparencies (39.7%).6
Loans1
Fifty-eight percent of 401k plans, accounting for 82 percent of participants, offer loans to plan participants. The probability of a plan offering plan loans to its employees increases with plan size with 91 percent of plans with more than 5,000 participants offering loans. Less than half the plans with 10 or fewer participants do so.
In plans that permit loans, on average 25.0% of participants have them, averaging $5,936 per borrower.
Reasons plans permit loans:
|
Home Purchase |
95% |
|
Education Expenses |
92% |
|
Medical Expenses |
86% |
|
Financial Hardship |
65% |
|
Home Improvement |
43% |
|
Automobile Purchase |
16% |
|
Other |
08% |
| Table 3 |
|
What is the average outstanding loan balance through 401k plans?5
For those with outstanding loans at the end of 2000, the average unpaid loan balance is $6,856. This represents about 14 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 (30 percent) and thirties (20 percent) and lower for participants in their fifties (11 percent) and sixties (9 percent).
Hardship Withdrawals1
Most 401k plans offer hardship withdrawals, but just 4 percent of participants take such a withdrawal. Forty-five percent made hardship withdrawal to purchase a home; 28 percent, to pay for a medical emergency; 21 percent, to pay bills or daily expenses; and 7 percent, to pay college tuition.
Internet Access3
The use of Internet in plan administration continues to increase rapidly; 83.9% of plans permit participants to make some type of transaction via the Internet, up from 79.3% of plans in 2000 and 64.0% in 1999. Intranet is used in 9.3% of plans.
Investment Advice3
Investment advice is offered in 41.4% of plans. It is most prevalent in small companies (55.5%) and least prevalent in large companies (25.7%). The most common types of advice offered are one on one counseling (52.7%), Internet providers (38.3%) and telephone hotlines (27.1%).
How Often Do Plans Change Recordkeepers
Approximately 24,000 plans converted to new recordkeepers in 2001 according to the Society of Professional Administrators and Recordkeepers. This figure represents 6.8 percent of all plans. Based on this 2001 data, any one plan would, on average, change recordkeepers once every 14.7 years.
Sources
1. 401k Plan Participants: Characteristics, Contributions, and Account Activity (PDF file) - Source: ICI
2. 401k and Profit Sharing Plan Eligibility Survey 2001 (PDF file) - Source: Profit Sharing/401k Council of America
3. 45th Annual Survey of Profit Sharing and 401k Plans - Source: Profit Sharing/401(k) Council of America
4. 2001 Defined Contribution Services Survey - Source: Plansponsor.com - free registration required
5. Frequently Asked Questions About 401k Plans - Source: ICI
6. 43rd Annual Survey of Profit Sharing and 401k Plans - Source: Profit Sharing/401k Council of America
