Individual Account Ownership Key Differentiator in Net Worth

Not only do individual account assets make up a large portion of the financial assets of those who own them, but those with individual accounts have significantly higher net worth levels than those without them, according to new research by the Employee Benefit Research Institute.

Based on an analysis of the 2016 Survey of Consumer Finances, EBRI’s findings show that the median net worth of those owning individual account (IA) assets was $249,950 in 2016, compared with $19,200 for families without such assets. In this report, “Individual Account Retirement Plans: An Analysis of the 2016 Survey of Consumer Finances,” IA plans include DC plans financed by both the employer and employee, Keogh plans and IRAs.

As DC plans have proliferated, the assets in IA plans have become the “predominant source of financial assets for American families holding them,” the report notes. For those families with IA plans, the median percentage of financial assets that IA plan assets represented was nearly 68% in 2016, which was down slightly from 70.3% in 2013, but 3.7 percentage points higher than in 2007 and 23.6 percentage points higher than in 1992, according to EBRI.

The data further show that, among families with a DC plan, the average balance in 2016 was $167,957 — a real increase of 24.6% from $134,815 in 2013. In addition, the average total balance of those families with at least one IRA/Keogh or DC account increased 11.4% from $208,639 in 2013 to $232,502 in 2016.

Yet, while overall average total balances increased, certain family cohorts realized drops in their average balances from 2013 to 2016. In particular, families with heads ages 35-44 or 65 and older and incomes less than $100,000, as well as families whose head had only some college education, saw their average total balances decline during this period, EBRI noted.

Participation among family heads continue to be strong, according to the data. Overall, 79.4% of DC plan eligible family heads in 2016 chose to participate in the plan, while just over 20% chose not to participate. EBRI notes that this was up slightly from 78.7% in 2013.

IRA assets have also continued to grow in importance, registering 41% larger than assets held in DC plans by the end of 2016, with the growth partially attributable to rollovers from employment-based plans.

DB-to-DC Shift

Meanwhile, the SCF survey data further substantiates the DB-to-DC shift. EBRI found that the percentage of all families from a current employer that had a DB plan only decreased substantially from 1992 to 2016, while the percentage with a DC plan only “surged during that same period.”

According to the data, 66.5% of all families that had an active participant in an employment-based retirement plan from a current employer were found to have a DC plan only. Conversely, 16.2% of these families had both a DB and DC plan, while only 17.2% had a DB plan only.

The percentage having a DB plan only decreased from 40% in 1992 to the 17.2% level in 2016, which was actually up from 15.3% in 2013. In comparison, the percentage having a DC plan only rose from 37.5% in 1992 to just above 66% in 2013 and 2016, while the percentage of families with both types of plans decreased from 22.5% in 1992 to 16.2% in 2016.

“While the results of this study do not answer questions about what is needed for retirement, they show the continued growing importance of individual account plans,” notes EBRI’s Craig Copeland, the author of the Issue Brief. “Consequently, any policy that alters this system could have consequences – either positive or negative – for Americans’ ability to fund a comfortable retirement.”

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