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Most Participants Are Invested in Equities, But Not Company Stock

More 401(k) plan participants held equities at year-end 2016 than before the financial crisis, but participants continue to shy away from investing in their own companies' stock, preferring more diversified investments, new data shows.

According to the Employee Benefit Research Institute (EBRI) and Investment Company Institute (ICI) study,“401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2016,” more than 90% of 401(k) participants overall had at least some investment in equities at year-end 2016.

Not surprisingly, younger 401(k) plan participants were slightly more likely to hold at least some equities and much more likely to have high concentrations in equities. More than three-quarters of participants in their 20s had more than 80% of their 401(k) plan accounts invested in equities at year-end 2016, compared with about one-fifth of plan participants in their 60s. What’s more, for participants in their 20s, this equity investment level is up from less than half at year-end 2007, perhaps signaling more comfort with the stock market since the end of the great recession.

“Retirement savers continue to invest heavily in equities through their 401(k) plans,” notes Jack VanDerhei, EBRI research director. “Though this is in large part driven by younger plan participants, savers in their 60s also remain focused on growth and held 55% of their 401(k) plan assets in equity investments.”

Overall, 48% of participants had more than 80% of their account balances invested in equities, while less than 8% held no equities at all at the end of 2016.

Company Stock and Balanced Funds

While the vast majority of participants were invested in equities, the EBRI-ICI data also shows that their investment in company stock continued at historically low levels. Only 6% of 401(k) assets were invested in company stock at year-end 2016 — the lowest share observed in the database.

According to the report, this level has fallen by 69% since 1999, when company stock accounted for 19% of assets. Contributing to this trend is recently hired 401(k) participants (those with two or less years of tenure). At year-end 2016 in plans offering company stock, fewer than one-quarter of recently hired 401(k) plan participants held company stock, compared with about 40% of all 401(k) participants.

Not surprisingly, younger 401(k) plan participants have large allocations to target date and other types of balanced funds. At year-end 2016, 64% of 401(k) participants in their 20s held TDFs, compared with 45% of 401(k) participants in their 60s. Among recently hired participants, TDFs are used at a higher rate of 59%, compared with 52% of all 401(k) plan participants who invest in those funds.

Allocations Hold Steady

Despite minor shifts, most 401(k) participants appeared not to have made major shifts in their asset allocations between year-end 2015 and 2016, according to the findings.

At year-end 2016, equity funds were 43.5% of the assets in the EBRI/ICI 401(k) database, barely changing from 43.1% at year-end 2015 and in line with recent years. Balanced funds increased only slightly in share, accounting for 27.4% of the assets in the database at year-end 2016. Together, equity securities — equity funds, the equity portion of balanced funds, and company stock — represented 67% of 401(k) plan participants’ assets at year-end 2016.

Average and Consistent Balances

The database further shows that the year-end 2016 average 401(k) plan account balance was 18% higher among consistent participants in the database in both 2015 and 2016. Among all participants, the average account balance in the year-end 2016 database was 3% higher than the average account balance in the year-end 2015 database. EBRI notes that this largely reflects the changing composition of the sample rather than the experience of typical 401(k) participants in 2016.

Meanwhile, 401(k) participant loan activity edged up slightly. At year-end 2016, 19% of all 401(k) participants who were eligible for loans had loans outstanding against their 401(k) accounts, up from 18% at year-end 2015.

The 2016 EBRI-ICI database includes statistical information on more than 27 million 401(k) plan participants in 110,794 plans, which hold $2.0 trillion in assets and cover 49% of active 401(k) participants.