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CCH® PENSION — 5/16/08

Retirement Plan Assets Continue To Grow Through Third Quarter Of 2007, Including Life Cycle Funds

From Spencer's Benefits Reports: Total retirement plan assets in the United States continued to grow from $16.5 trillion at the end of 2006 to $17.8 trillion at the end of the third quarter of 2007, according to statistics reported by the Investment Company Institute (ICI) in its April Fundamentals newsletter. Defined benefit plan assets grew from $2.414 trillion at the beginning of 2007 to $2.482 trillion at the end of the third quarter of 2007, while defined contribution plan assets grew from $4.119 trillion to $4.504 trillion over the same time period.

The other categories that make up the total U.S. retirement market are individual retirement accounts ($4.765 trillion at the end of the third quarter of 2007), state and local government pension plans ($3.264 trillion), federal pension plans ($1.155 trillion), and annuities ($1.660 trillion).

Of the $4.504 trillion held in defined contribution plans at the end of the third quarter of 2007, $3.063 trillion was held in 401(k) plans, $918 billion was held by IRC Sec. 403(b) and 457 plans, and $523 billion was held by other types of defined contribution plans (plans that do not have 401(k) features and Keogh plans). Mutual funds held $2.373 trillion of the defined contribution plan assets at the end of the third quarter of 2007, including $1.681 trillion in 401(k) plans and $401 billion in Sec. 403(b) plans.

The ICI statistics show the amount and percentage of defined contribution plan assets held in mutual funds by type of fund for the end of the third quarter of 2007, as follows:

Hybrid funds include two types of funds that are rapidly growing–life cycle and lifestyle funds. The ICI defines a life cycle fund as a hybrid fund that typically rebalances to an increasingly conservative portfolio as the target date of the fund approaches. Lifecycle funds held in employer-sponsored defined contribution plans have grown rapidly in the past four years: from $30 billion at year-end 2004, to $48 billion at year-end 2005, $79 billion at year-end 2006, and $114 billion at the end of the third quarter of 2007.

Lifestyle funds are defined as maintaining a predetermined risk level such as conservative, moderate, or aggressive. Life style fund assets held by employer-sponsored defined contribution plans have not grown as rapidly as those in lifecycle funds: $22 billion at year-end 2004, $37 billion at year-end 2005, $49 billion at year-end 2006, and $58 billion at end of the third quarter of 2007.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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