Nearly 80% of 401(k) plan participants in their 20s had more than 80% of their account balances invested in equities. Only half the people in that same age group held that much before the global financial crisis.

That’s the finding from a new joint study by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI), released today.

“Our research finds that younger 401(k) plan participants today are much more comfortable holding a significant portion of their savings in equities,” said Sarah Holden, ICI’s senior director of retirement and investor research (and one of the study’s authors).

Younger participants, as a group, had more than 80% of their 401(k) plan assets invested in equities at the end of 2020. Among older investors in their 60s, however, the number was a lot less: Only 56% of them had that much in 401(k) plan assets, according to the study

The report is called “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2020.”  

The study found that 401(k) plans are drawing “many young retirement savers and new hires.” Some 38% of 401(k) plan participants were in their 20s or 30s, and 24% were in their 40s in 2020.

Some 43% of 401(k) plan participants had five or fewer years of tenure, and about one-fifth of them were recent hires (people with two or fewer years of tenure).

Ownership of equities is widespread among 401(k) plan participants. Overall, 94% of 401(k) participants had at least some investment in equities at the end of 2020. The analysis is based on the EBRI/ICI database, which contains information on 11.5 million 401(k) plan participants in 76,507 plans—holding $1.0 trillion in assets. The database covers 19% of the universe of active 401(k) participants, the groups said.

While the needle in equity ownership overall has not moved in recent years, more 401(k) plan participants held equities at the end of 2020 than before the global financial crisis (defined by the trade groups as year-end 2007) and most had the majority of their accounts invested in equities.

Specifically, the new joint report found that 42% of all 401(k) plan participants’ account balances overall were invested in equity funds on average, which is in line with recent years. Another 35% of account balances were invested in balanced funds, largely target-date funds.

The target-date funds, “also known as life cycle funds, are designed to offer a diversified portfolio that automatically rebalances to be more focused on income over time,” the study said, and these funds continue to be a mainstay of 401(k) plan participants.

At the end of 2020, 86% of 401(k) plans, covering 87% of 401(k) plan participants, included target-date funds in their investment lineups.

Target-date funds represented 31% of the assets in the EBRI/ICI 401(k) database, and 59% of 401(k) participants in the database held them.

Still, account balances in 401(k) plans remain relatively modest because of the rising cost of living for America’s retirees. Participants in their 40s with two to five years of tenure had an average 401(k) plan account balance of about $43,000, while those in their 60s with more than 30 years of tenure had an average balance of more than $350,000.

On the positive side, the study found that loans against these 401(k) plans are rarely taken, even though they are widely available. At the end of 2020, 84% of participants were in plans that allowed them to take loans, but only 16% had loans outstanding against their plan accounts, and that was down from the end of 2019.

The loans outstanding amounted to 8% of account balances, on average, at the end of 2020, which was the same as 2019’s year-end number, and well below their historical average, the study said. Loan amounts, on average, increased in 2020, but remained small relative to rising account balances.

“At year-end 2020, only 16% of 401(k) participants who were eligible for loans had loans outstanding against their 401(k) plan accounts, showing the ability of 401(k) plan participants to hold their course in preparing for retirement during unprecedented times,” said another author of the study, Craig Copeland, EBRI’s director of wealth benefits research.

“Even during the turmoil of the Covid-19 pandemic and loosening of the regulations around plan loans in 2020, the percentage of 401(k) plan participants eligible to take a loan who had an outstanding loan balance declined slightly in 2020 from 2019, to a level last seen in the early 2000s,” Copeland added.