April Showers Good for 401(k) Balances?
Average 401(k) balances bounced back in April, but it was new money that did the heavy lifting.
Older, higher tenured participants tend to have larger balances, and the movement in average balance tends to be more influenced by market moves than contribution flows. Consequently, while the average account balance of participants between ages 55 and 64 with more than two decades of tenure with their current employer crept 0.5% higher last month, that wasn’t enough to erase March’s 0.7% dip, according to an analysis by the Employee Benefit Research Institute (EBRI) of the EBRI/ICI database.
On the other hand, the percent change in average account balance of participants in their 20s is more heavily influenced by the relative size of their contributions to their account balances. Sure enough, the average balance of those aged 25-34 with just 1-4 years of tenure surged 2.3% in April, emphasizing the importance — and impact — that regular payroll deduction contributions can make in keeping account balances growing even when the markets don’t.
Those gains, based on the actual contribution records and investment choices of several million consistent participants in the EBRI/ICI database, were influenced by contributions and withdrawal/loan activity, as well as investment performance.
Drawing from that database, which includes demographic, contribution, asset allocation, and loan and withdrawal activity information for millions of participants, EBRI has produced estimates of the cumulative changes in average account balances — both as a result of contributions and investment returns — for several combinations of participant age and tenure. You can access reports of both cumulative and monthly average account changes here.