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CCH® PENSION — 5/17/11

Defined Contribution Plan Assets Return To Record Levels In 2010

from Spencer’s Benefits Reports: Retirement assets in the United States grew by 9% in 2010, from $16.0 trillion in 2009 to $17.5 trillion in 2010, according to the 2011 Investment Company Fact Book published by the Investment Company Institute (ICI). The $17.5 trillion breaks down as follows:

• $4.5 trillion was in defined contribution plans (401(k), 403(b), 457, Keogh, and other employer-sponsored plans);
• $8.3 trillion was in “other plans” (defined benefit, government plans, fixed and variable annuities, etc.); and
• $4.7 trillion was in individual retirement accounts.

Defined contribution plans have grown from $1.717 trillion in 1995 to $4.525 trillion in 2010, which represents the most assets held by defined contribution plans since $4.444 trillion was held in 2007. Of the $4.525 trillion, $3.056 trillion is held by 401(k) plans, $939 billion is held by 403(b) and 457 plans, and $530 billion is held by other defined contribution plans without 401(k) features (Keogh, profit-sharing, thrift-savings, stock bonus, and money purchase plans).

Average asset allocation by 401(k) participants varied by age according to research conducted by the ICI and the Employee Benefit Research Institute (EBRI) in 2009, as follows:

A breakdown of what percentage of account balances were held in equities revealed that 54% of the participants in their 20s had more than 80% of their account balance in equities while only 22% of participants in their 60s had more than 80% of the account balance in equities. Conversely, 14% of participants in their 20s and 18.9% of participants in their 60s had no equities in their accounts.

The market share of target date funds has grown from 57% of the 401(k) plans that offered target date funds in 2006 to 77% of the 401(k) plans in 2009. In 2009, 33% of 401(k) plan participants held at least some plan assets in target date funds versus 19% of 401(k) plan participants in 2006. Assets invested in target date funds has grown from 5% of total assets in 2006 to 10% of total assets in 2009.

Participants in their 60s with at least 30 years of service at their current employer had an average account balance in 2009 of $198,993.

When lump sum distributions are made from a defined contribution plan, 14% of the recipients spend all of the proceeds while 56% of the recipients rolled over all of the proceeds to an IRA. The remaining 25% spent some of the distribution and either rolled over some of it to an IRA and/or reinvested some of the distribution in another asset. The ICI survey noted that “because retirees who spent some or all of their lump sum distribution tended to have lower account balances, only 7% of the total dollars distributed as lump sums at retirement were spent immediately.”

At year end 2010, 27% of the $17.5 trillion in retirement assets ($4.687 trillion) was invested in mutual funds. IRAs have $2.222 trillion invested in mutual funds followed by 401(k) plans with $1.803 trillion invested in mutual funds, 403(b) plans with $365 billion, 457 plans with $75 billion, and “other plans” with $223 billion. Domestic equity funds represented 44% of retirement assets invested in mutual funds ($2.074 trillion), followed by 15% invested in bond funds ($710 billion), 19% in hybrid funds ($878 billion), 14% in foreign equity ($675 billion), and 7% in money market funds ($351 billion).

For more information, visit http://www.ici.org/pdf/2011_factbook.pdf.

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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