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No Foolin’—March Takes a Toll on the Average 401(k) Balance

Industry Trends and Research

To no one’s surprise, the average 401(k) took a hit in March. But perhaps not quite as bad as you may have thought.

It wasn’t just March, of course. A month ago the average 401(k) balance for younger (25-34), less tenured (1-4 years) workers slid 4.3%. Older (age 55-64) workers with more than 20 years of tenure was off 4.4% for the month. That in a month where the major averages all set new record highs.

Ah, but by March we had all awakened to the dangers of the Coronavirus. And in a month of extraordinary market volatility, the Dow Jones Industrial Average recorded the most dismal first quarter of its 135-year history, off 26% from the record high it set… in February. The S&P 500 also set a record of a different sort for the quarter—down 24% from the record it (also) set just six weeks ago. 

As for the average 401(k), for younger (25-34), less tenured (1-4 years) workers, it plunged 7.3%. Older (age 55-64) workers with more than 20 years of tenure also shed 7.3%, according to estimates from the nonpartisan Employee Benefit Research Institute (EBRI).[i] For the quarter, the younger, less-tenured group is off 9.9% from the start of the year, while the older cohort is off 10.5%.  

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The groups often diverge more in results—the older cohort’s average balance generally more influenced by market moves than contributions. However, in March that “buffering” effect of contributions was offset by the larger exposure to equities by the younger group. That said, the contributions surely served to offset the losses imposed by the markets.

It’s been said that March comes in like a lion, but leaves like a lamb. But this March it seems more like another animal.

[i]EBRI’s analysis, based on the organization’s huge database of some 26 million 401(k) plan participants in more than 101,000 employer-sponsored 401(k) plans representing nearly $2 trillion in assets, is unique because it includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options.

The EBRI/ICI database 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 find those results here.