The post was titled, “Did Your 401(k) Balance Increase $50,000 This Year? If Not, You May Be Falling Behind.”
Or, as I am inclined to think when I see such nonsense, “you may not.”
The article was mostly a simple recycling of information just released by BrightScope on their determination of the “Top 30 401(k) Plans of 2014.” In looking at those 30 plans, BrightScope chose several data points to highlight — including the point that, among those 30 plans, the average account balances have increased nearly $50,000 since the top 30 list of 2013 was compiled.
In drawing insights from those results — specifically the $50,000 increase in average balance — the article’s author (a Certified Financial Planner, no less) opined:
That may be a good benchmark to determine just how effective your retirement savings plan is working for you. If your balance has grown an amount equal to or greater than that, congratulations — you're above average. Less than $50,000 of annual appreciation and maybe it's time to consider some changes.
So, let’s think about this for a minute. We’re supposed to consider as a benchmark for 401(k) plan performance the change in average account balance (which could, of course, include individuals of widely differing age, tenure and compensation levels), of just 30 plans (which could, of course, include widely different match levels, investment options and workforce compositions, not to mention the differences in participant characteristics noted)?
Oh, and we’re not even talking about the same plans; more than a third of those 30 plans highlighted by BrightScope were not even on the firm’s 2013 list. So, on top of everything else, we’re told that a “good benchmark” may be drawn from comparing a one-year average increase in balance among a completely different set and diverse set of individual participant circumstances among a completely different set of plans.
There may be sillier points of comparison to be made in establishing a benchmark for your 401(k) — but I’ll be darned if I can think of one.
- Nevin E. Adams, JD
If you’re interested in a more realistic and real-world assessment of 401(k) plan growth, see “What Does Consistent Participation in 401(k) Plans Generate? Changes in 401(k) Account Balances, 2007–2012” here.