Corona Concerns Cast 'Shadow' on 401(k)s

Punxsutawney Phil may not have seen his shadow on Groundhog Day—but the average 401(k) definitely saw a “shadow” in February, spurred by a weeklong bout of coronavirus concerns.

 

It was indeed a wild month for the markets, which at mid-month registered all-time highs, only to suffer, in the last week of February, the worst weekly decline since the 2008 financial crisis. The S&P 500 plunged 11% in the five days and the Dow Jones Industrial Average tumbled 680 points during the month's final two days, leaving it down about 1,600 points from the record high in late January.

 

As one would expect, that downdraft had an impact on 401(k) balances. According to estimates from the nonpartisan Employee Benefit Research Institute (EBRI), in February the average 401(k) account balance for younger (25-34), less tenured (1-4 years) workers slid 4.3%. Older (age 55-64) workers with more than 20 years of tenure, whose average balance is generally more influenced by market moves than contributions, fared a bit worse, falling 4.4% for the month.

 

Those losses offset gains in January, when the average 401(k) account balance for younger (25-34), less tenured (1-4 years) workers rose 1.5%, and that of older (age 55-64) workers with more than 20 years of tenure, rose 1.0%.

 

EBRI’s analysis, based on the organization’s huge database of some 26 million 401(k) plan participants in more than 101,000 employer-sponsored 401(k) plans representing nearly $2 trillion in assets, is unique because it includes data provided by a wide variety of plan recordkeepers and, therefore, portrays the activity of participants in 401(k) plans of varying sizes—from very large corporations to small businesses—with a variety of investment options.

 

The EBRI/ICI database includes demographic, contribution, asset allocation and loan and withdrawal activity information for millions of participants. EBRI has produced estimates of the cumulative changes in average account balances—both as a result of contributions and investment returns—for several combinations of participant age and tenure. You can find those results here.