Data & Research August 5, 2009

DC Plan Balances Cut 15% by Downturn

Median asset levels in defined contribution and IRA/Keogh plans dropped at least 15% from year-end 2007 to mid-June 2009, according to the Employee Benefit Research Institute (EBRI).

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EBRI used data from the Federal Reserve Board’s 2007 Survey of Consumer Finances (SCF). Among all families with a defined contribution plan, the median plan balance was $31,800 in 2007, up 16% from 2004. EBRI estimates this dropped 16.4% (to $26,578) from year-end 2007 to mid-June 2009.

Losses were higher for families with more than $100,000 a year in income (down 22%) or those having a net worth in the top 10% (down 28%).

Among all families with an IRA/Keogh plan, the median value of their plan was $34,000 in 2007, up 3% from 2004, and EBRI estimates this median value dropped 15% (to $28,955) from year-end 2007 to mid-June 2009.

According to the Federal Reserve data, in 2007, 40.6% of families had a participant in an employment-based retirement plan—either defined benefit or defined contribution—from a current job, the EBRI analysis reports. This was up from 38.8% in 1992, but virtually unchanged from 40.3% in 2004.

A significant shift in the plan type occurred from 1992 to 2007, with the share of families with a retirement plan having only a defined benefit plan decreasing from 40% to 17.4%. The share of families participating in only a defined contribution plan rose from 37.5% in 1992 to 60.3% in 2007. The percentage of families with both types of plans was unchanged from 1992 to 2007 at 23%.

Families that owned either an IRA or a Keogh plan increased in 2007 to 30.6% from 29.1% in 2004—a significant increase from 26.1% in 1992. Ownership of an IRA increased with family income, the family head’s educational level, and the family’s net worth, according to EBRI.

While regular IRAs account for the largest percentage of IRA ownership, rollover IRAs had a larger share of assets than regular IRAs in 2007.

The analysis is in the August 2009 EBRI Issue Brief, available at www.ebri.org .

The Markets August 5, 2009

Emerging Managers Better Performers during Downturn

Small, entrepreneurial investment management firms maintained a performance advantage over larger, established firms through last year’s market downturn, according to updated research on emerging investment managers by Northern Trust.

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The research update found that firms with less than $2.6 billion in assets under management (AUM), the threshold AUM level equating to 1% market share, delivered stronger performance with less volatility in the five-year period ending December 31, 2008, according to a press release.

The median small-sized manager outperformed the median large firm by 0.41% annually, for cumulative savings of more than $4 million on a typical $200 million institutional allocation over the five years studied. The advantage was similar at the top and bottom quartile marks and across value, growth, and core investment styles, Northern Trust said.

Small firms delivered these results while taking less risk, as measured by standard deviation. On an equally weighted composite basis, small firms lost -0.74% annually versus -1.23% for large firms, with an annualized standard deviation of 13.9% (matching the S&P 500), compared to 14.7% for the largest firms.

During the five years included in the study, small firms in aggregate outperformed the Standard & Poor’s 500 Index six times out of eight in down market quarters. They outperformed the index by an average of 0.51% per down-market period, the best of any of the groups studied.

Northern Trust studied five-year performance data for 476 active core U.S. equity products managed by 282 firms, both emerging and established, with a total AUM of $11.7 trillion.

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