The Markets December 18, 2008

Only 7% of 401(k) Assets Invested In Lifecycle Funds

At year-end 2007 more than 7% of 401(k) assets were invested in lifecycle funds and one-quarter of 401(k) participants held lifecycle funds, according to an analysis conducted by the nonpartisan Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI).
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The findings are part of the annual update of the EBRI/ICI 401(k) database, and reflect that assets in lifecycle funds represent 7.4% of total 401(k) assets in the database, and 25.1% of participants in the database were invested in lifecycle funds. The analysis found that about two-thirds of 401(k) plans included lifecycle funds in their investment lineup at year-end 2007.

Across all age groups, more new or recent hires invested their 401(k) assets in balanced funds, including lifecycle funds, the data show. At year-end 2007, 28% of the account balances of recently hired participants in their 20s were invested in balanced funds, compared with 24% in 2006. At year-end 2007, almost 19% of the account balances of recently hired participants in their 20s were invested in lifecycle funds, compared with 16% at year-end 2006.

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Other Investments

The bulk of 401(k) assets continued to be invested in stocks. On average, at year-end 2007, about two-thirds of 401(k) participants’ assets were invested in equity securities through equity funds, the equity portion of balanced funds, and company stock. However, the share of 401(k) accounts invested in company stock continued to shrink, falling by 0.5 percentage point to 10.6% in 2007.

About one-third of 401(k) assets were in fixed-income securities such as stable value investments and bond and money market funds.

Plan Demographics

At year-end 2007, the average account balance in the EBRI/ICI database was $65,454, compared with $61,346 at year-end 2006. 401(k) account balances varied with participant age, tenure, and salary. Individuals with account balances of less than $10,000 were primarily young workers or workers with short job tenures, and those with account balances in excess of $100,000 were primarily older workers or workers with longer job tenure.

In 2007, 18% of all 401(k) participants eligible for loans had a loan outstanding against their 401(k) account, the same percentage as at year-end 2006. Most loans tended to be small, amounting to 12% of the remaining account balance, on average, similar to year-end 2006.

A report of the analysis, written by Jack VanDerhei, EBRI research director; Sarah Holden, ICI senior director of retirement and investor relations; Craig Copeland, EBRI senior research associate; and Luis Alonso, EBRI director of information technology and research databases is published in the December 2008 EBRI Issue Brief and the ICI Perspective.

Data & Research December 18, 2008

403(b) Plans Have Some Work to Do

403(b) plan sponsors have just gotten some additional breathing room from regulators – and, according to a recent survey, they’ll need it.
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Last week, the Internal Revenue Service (IRS) gave 403(b) plan sponsors an extra year to get their written plan documents in order under new regulations, subject to certain conditions (see IRS Offers Relief for 403(b) Written Plan Requirement).

According to the 2008 403(b) Plan Survey, 41% of 385 respondents say they need to make changes to their 403(b) plan to comply with the new regulations, and just about one-in-ten said they were unsure of their plan’s ERISA status. “In light of the final 403(b) regulations, plan design is a key concern for 403(b) plan sponsors,” says Aaron Friedman, national practice leader—non-profit, The Principal.

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The survey, sponsored by the Principal Financial Group, is the first 403(b) benchmarking survey from the Profit Sharing/401k Council of America (PSCA).

According to a press release about the survey – which will be available for purchase early next month, 53.1% of 403(b) plans offer a match of one dollar or more for every dollar employees contribute, compared with just 36.2% of for-profit companies offer the same amount according to PSCA’s 51st Annual Survey of Profit Sharing and 401(k) plans (see PSCA Survey Shows Auto Enroll/Higher Participation Link).

PSCA’s 2008 403(b) Plan Survey will be available for purchase in early January for $145 for PSCA members and $375 for non-members. Surveys may be pre-ordered now at www.psca.org.

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