Younger Adults Are Increasingly Participating in 401(k) Plans

An annual analysis of 401(k) retirement plans showed that 38% of plan participants were in their 20s or 30s as of year-end 2020.

An annual analysis of 401(k) retirement plans by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI) showed that 38% of plan participants were in their 20s or 30s as of year-end 2020.

Additionally, 43% of participants opened their 401(k) plan within the past five years. (Job tenure for nearly one-fifth of participants was two or fewer years.)

Even with the participation of younger workers, the median age of participants in the database was 45. Despite this, participants age 50 and older hold 63% of assets.

The results showed a wide range of account balances. The average account balance was $87,040 and the median account balance was $17,961. However, more than three-quarters of participants had an account balance below the average. In fact, almost 40% of participants had balances below $10,000. Generally, account balance increases with age and tenure. Average balances did not exceed $200,000 until tenure exceeded 20 years. Workers in this group tended to be in their 50s and 60s.

A number of other factors contribute to the disparity in balances besides tenure and age, including salary, contribution behavior, rollovers from other plans, asset allocation, withdrawals, loan activity and employer contribution rates.

Younger participants tend to have more aggressive asset allocations, with more than 80% invested in equities. This compares with 56% of 401(k) plan assets in equities among participants in their 60s. Overall, 42% of participants are invested in equities and another 35% invest in balanced funds, largely target-date funds.

Target-date funds remain common offerings, available in 86% of 401(k) plans. About two-thirds of those offered target-date funds (68%) invest in them. Younger participants are slightly more likely to hold target-date funds than older participants. Growth in target-date fund usage is also largest among younger participants.

Source: “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2020,” by Sarah Holden, Steven Bass and Craig Copeland; Investment Company Institute, November 2022.