Workers who saved consistently in a 401(k) plan during the five years that included the financial crisis are reaping the rewards.
So says a newly released study by the Employee Benefit Research Institute and the Investment Company Institute, which found that the average account balance of workers who participated consistently in a 401(k) plan from year-end 2007 to year-end 2012 increased at a compound average annual growth rate of 6.8% during that period, despite a 34.7% drop in that group's average 401(k) account balance in 2008.
The increase in account balances reflects several factors, EBRI and ICI said, including employer and worker contributions, investment returns, withdrawals and loans.
The study, "What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2012," also found that at year-end 2012, the average account balance of the consistent participants was 67% higher than the average account balance among all participants in the EBRI/ICI 401(k) database.
The consistent group's median balance increased at a compound annual average growth rate of 11.9% over the period, to $49,814 at year-end 2012—almost three times the median balance across all participants at year-end 2012, the study found.
The study looked at the accounts of approximately 7.5 million consistent participants among the 24 million participant accounts in the EBRI/ICI 401(k) database, over the five-year period from year-end 2007 to year-end 2012.
Sarah Holden, ICI's senior director of retirement and investor research and co-author of the study, said in a statement that the research provides "a meaningful analysis of the potential for 401(k) participants to accumulate retirement assets because it examines how a consistent group of participants' 401(k) accounts change over time." The research, she added, "highlights that contributing and investing in a 401(k) plan consistently results in higher average account balances than the average balance for all plan participants."
Indeed, during an event held in late July at the Bipartisan Policy Center in Washington titled "Retirement Security: What's Working and What's Not?" Lynn Dudley, senior vice president of policy at the American Benefits Council, noted that participation in defined contribution plans like 401(k)s continues to be a crucial part of a secure retirement.
Dudley noted that the "three-legged stool" of retirement funding (Social Security, personal savings and retirement plan savings, including traditional pension plans) has shifted to a "new paradigm"—the pyramid.
The pyramid, she said, includes five broad components: Social Security; homeownership; employer-sponsored retirement plans; individual retirement accounts (IRAs); and other assets.
