The average account balance for active 401(k) participants grew by 26 percent from 1996 to 1998, largely due to the continuing bull market in equities, according to a recent study by the Employee Benefit Research Institute and the Investment Company Institute, both of Washington, D.C.

The study, "401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 1998,"released Jan. 20, includes information on 7.9 million active participants in 30,102 plans holding nearly $372 billion in assets. EBRI and the ICI have reported on the behavior of 401(k) plan participants for three years and the database, the largest of its kind, now reflects 11 percent of all 401(k) plans, 22 percent of all plan participants and roughly 27 percent of 401(k) assets, according to EBRI.

The latest study continues to show wide variation around the average account balance - $47,004 at year-end 1998. Nearly three-quarters of plan participants have account balances below the average, while 13 percent of participants have account balances greater than $100,000. Factors related to this variation include the age of participants, job tenure and contribution behavior. The median account balance among active 401(k) participants was $13,038 at year-end 1998. These figures represent the balances with the employee's current employer and do not include amounts left with previous employers or rolled over into individual retirement accounts.

The study also found that almost three-quarters of all 401(k) assets are invested directly or indirectly in equity securities, yet allocations vary greatly across participants. About 28 percent of plan participants have more than 80 percent of their accounts invested in equity funds, while 28 percent hold no equity funds at all.

Overall, 401(k) assets are invested this way: 49.8 percent in equity funds, 17.7 percent in company stock, 11.4 percent in guaranteed investment contracts, 8.4 percent in balanced funds, 6.1 percent in bond funds, 4.7 percent in money market funds and 0.3 percent in other stable value funds.

As in previous years, the study found that younger 401(k) plan participants favor equity funds, while older participants invest more heavily in fixed-income assets. On average, participants in their 20s have 62.1 percent of their account balances invested in equity funds, in contrast to 39.8 percent for those in their 60s. Participants in their 20s invest 4.7 perent of their assets in guaranteed investment contracts, while those in their 60s invest 20.6 percent. Bond funds represent 4.7 percent of the assets of the participants in their 20s and nine percent of the assets of participants in their 60s.

The study also found that more than half of 401(k) plan sponsors (56 percent), serving 80 percent of the database's plan participants, offer loans. Among participants eligible for loans, 16 percent had outstanding loans at the end of 1998. The average loan balance was 14 pecent of the account balance, net of the unpaid loan. Loan activity varies with age, tenure and account balance, with participants between age 30 and 59 more likely to borrow than older or younger workers.

"401(k) salary reduction retirement plans are the fastest-growing type of retirement plan in the United States, and this database provides crucial information that is helping us understand how people are saving and managing their assets," said Dallas Salisbury, president of EBRI.

The 1998 study includes data from a subset of 3.3 million plan participants who were included in the 1996, 1997 and 1998 studies. Although results for asset allocation and loan activity for year-end 1998 are broadly similar to those for year-end 1996, tracking this group over time will illustrate how plan participants modify their asset allocations and contributions as they age, receive raises and respond to changes in the financial markets, according to EBRI.

Additional study findings include:

* Investment options offered by 401(k) plans appear to influence asset allocation.

* The average balances of older workers with long tenure indicate that a mature 401(k) plan program will produce substantial account balances.

* The ratio of account balance to 1998 salary varies with salary.

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