Retirement Assets up $3.5 Trillion Since Recession

Strong performance across equity sectors coupled with positive returns in the bond markets helped push total U.S. retirement market assets to an estimated $16 trillion by year-end.

In its 2011 Retirement Market Overview, the Society of Professional Asset Managers and Record Keepers (SPARK) said this is a vast improvement from the peak of the financial crisis in 2008, when assets stood at just over $12.5 trillion.  

Growth in the employer-based defined benefit (DB) segment was weakest, at just over 10%, due largely to negative three percent net cash flow in the corporate sector, SPARK said.   

The primary engine for growth in the DC market remains 401(k) plans. Representing almost a third of all retirement assets and nearly 60% of all DC plan assets, 401(k) plans topped $3 trillion in 2010. Most of the growth resulted from gains in the financial markets as net cash flow was just one percent of average assets, in keeping with its historical average for the past five years.  

Following a year of slow growth, both the number of 401(k) plans and participants experienced increases close to historic trend levels in 2010. SPARK estimates an increase of more than 25,000 plans, approximately half of which were in the small market ($1-10 million in assets). At the same time, approximately one million participants were added.   

The 403(b) plan market experienced slower growth than the 401(k) market, due in part to its historic weighting toward stable value and fixed income investments – 55% compared with 33% in 401(k)s. This difference may be due partly to tradition, partly to the greater use of insurance products and partly to participant demographics. Participants in 403(b) plans on average are older and more likely to be female, both factors that contribute to more conservative investment allocations, SPARK noted.  

Assets in the 403(b) segment are estimated at $795 billion in 2010, up by almost 7% over the prior year.  

Although they currently account for just $240 billion in assets, public sector 457 and 401(a) plans are likely to benefit in the year ahead from the gradual shift away from state and local DB plans, the report said.  

IRA assets grew by an estimated 15%, reaching almost $4.5 trillion in 2010. Rollovers from employer-sponsored plans are the primary driver of growth for these plans, contributing an average of $175 billion in net cash flow annually over the past five years and now representing over 65% of the IRA market.   

SPARK noted that rollovers had been down moderately during the previous two years due to the challenging job market, which typically restricts voluntary job changing and postpones voluntary retirements. However, the group contends that current demographic trends, with the first wave of Baby Boomers hitting age 65 in 2011, and an improving job picture, will continue to make rollover IRAs the fastest growing, most dynamic sector of the retirement market for some time. 

SPARK found the cyclical shift from fixed income to equity assets continued in 2010 with assets in all equity categories representing 67% of 401(k) assets in 2010, up from 62% in 2009. Stable value assets returned to more normal levels after reaching 28% in 2008, then declining to 23% in 2009 and 18% in 2010.  

Driven by growth in target date fund assets, the balanced/lifecycle category (which includes traditional balanced funds and risk-based asset allocation funds) now exceeds 20% of all assets, an historic high. Target date funds alone now represent nearly 9% of all assets.