JACK VANDERHEI, Employee Benefit Research Institute (EBRI)
SARAH HOLDEN, Investment Company Institute
LUIS ALONSO, Employee Benefit Research Institute (EBRI)
STEVEN BASS, Investment Company Institute
This paper analyzes changes in 401(k) account balances of consistent participants in the EBRI/ICI 401(k) database over the six-year period from year-end 2007 to year-end 2013. Two major insights emerge from looking at consistent participants in the EBRI/ICI 401(k) database over this six-year time period: The average 401(k) account balance fell 25.8 percent in 2008, and then rose from 2009 through year-end 2013. Overall, the average account balance increased at a compound annual average growth rate of 10.9 percent from 2007 to 2013, to $148,399 at year-end 2013. The median (midpoint) 401(k) account balance increased at a compound annual average growth rate of 15.8 percent over the period, to $75,359 at year-end 2013. At year-end 2013, the average account balance among consistent participants was more than twice the average account balance among all participants in the EBRI/ICI 401(k) database. The consistent group’s median balance was more than four times the median balance across all participants at year-end 2013. Three primary factors affect account balances: contributions, investment returns, and withdrawal/loan activity. The percentage change in average account balance of participants in their 20s was heavily influenced by the relative size of their contributions to their account balances and increased at a compound average growth rate of 46.6 percent per year between year-end 2007 and year-end 2013. The asset allocation of the 4.2 million 401(k) plan participants in the consistent group was broadly similar to the asset allocation of the 26.4 million participants in the entire year-end 2013 EBRI/ICI 401(k) database. On average at year-end 2013, about two-thirds of 401(k) participants’ assets were invested in equities, either through equity funds, the equity portion of target-date funds, the equity portion of non-target-date balanced funds, or company stock. Younger 401(k) participants tend to have higher concentrations in equities than older 401(k) participants. Equity holdings by consistent 401(k) participants increased slightly among younger participants and decreased slightly for older participants. High allocations to equities dropped for both groups from 2007 to 2013. More consistent 401(k) plan participants held target-date funds at year-end 2013 than at year-end 2007, on net; many of those with target-date funds held all of their 401(k) account in target-date funds.
ALICIA H. MUNNELL, Boston College - Center for Retirement Research
ANTHONY WEBB, Boston College - Center for Retirement Research
ANQI CHEN, Center for Retirement Research at Boston College
Working longer is a powerful lever to enhance retirement security. Individuals should be able to extend the number of years they work because, on average, they are healthier, live longer, and face less physically demanding jobs. But averages are misleading when discrepancies in health, job prospects, and life expectancy have widened between individuals with low and high socioeconomic status (SES). To understand the magnitude of the problem, this paper, using data from the Health and Retirement Study, specifies how much longer households in each SES quartile would need to work to maintain their pre-retirement standard of living and compares those optimal retirement ages with their planned retirement ages to calculate a retirement gap. It then uses regression analysis to explore whether the gap reflects poor circumstances or poor planning – that is, the extent to which the retirement gap results from health, employment, and marital shocks that occur before the HRS interview but too late for the household to adjust saving (between ages 50 and 58), as opposed to a gap resulting from inadequate foresight. The analysis shows that households in lower-SES quartiles have larger retirement gaps, and this pattern remains true even after controlling for late-career shocks. In short, the most vulnerable have the largest retirement gaps, and these gaps arise from poor planning rather than late-career shocks.
"Pension Management between Financial Market Development and Intergenerational Solidarity: A Socio-Economic Analysis and a Comprehensive Model"
EGPA 2015 Annual Conference, Toulouse, 26-28 August 2015
In recent decades, management modes for pension obligations has been coevolving with political and financial economic strategies aimed to prompt and promote active financial markets and institutional investors, as well as transnational harmonisation and convergence of accounting standards between private and public sectors. In this context, our article provides a theoretical analysis of these management modes for pension obligations, drawing upon a comprehensive review of existing practice and regulation. The latter are still inconsistent with the actuarial representation that has been fostered by international institutions, including the World Bank, the European Commission and the International Public Sector Accounting Standards (IPSAS) Board. According to our frame of analysis, a variety of viable modes of pension management exists and may be acknowledged. Our article elaborates a model of pension management in view to clarify and improve on pension protection, that is, the assurance of continued provision of pension payments at their agreed levels under viable alternative modes of pension management. Drawing upon this model, we further develop policy recommendations for accounting and prudential regulations concerned with pension obligations.