Total Employer-Based Plan Assets Reach $10T in 2010

Total assets held in employer-sponsored retirement plans was $10.2 trillion at the end of 2010, up 11% from $9.3 trillion a year earlier, a Spectrem Group analysis indicates.

Spectrem found that defined benefit (DB) plans account for 84% of the retirement plan assets held for public sector employees while defined contribution (DC) plans account for 62% of the assets held for private sector employees.

Other findings in the data analysis included that:

  • the rate of adoption for automatic enrollment and deferral escalation has slowed but average participation rates are still growing;
  • asset allocation funds, including target date, target risk and traditional balanced funds, continue to grow in popularity with participants;
  • plan sponsors are moving to restore matching contributions that were reduced or eliminated due to the financial crisis but overall, the proportion matching and the average matching amount remains below what it was in 2007; and
  • cost has become a key driver of plan sponsors’ decisions. It is now the primary reason given by plan sponsors who switch providers and it is a major factor in the selection of investments options.

Asset growth in private sector DC plans averaged just under 5% annually over the past five years. Like other plan types, asset growth in 401(k) plans was minimal during the past five years because of the 2008 financial crisis. In this mature market, new plan formation is expected to average 2%-3% annually going forward and to be concentrated among smaller companies. Assuming investment returns at historic averages, asset growth should average 8-10% annually over the next five years. 

A second year of strong returns in equity markets produced a shift back towards equities in 401(k) plans. In addition, the use of target-date and other asset allocation funds increased, spurred on by the use of these fund types as the default option (QDIA) in plans implementing automatic enrollment, Spectrem said.

Over the past five years, 403(b) plan assets grew at an average annual rate of 5.4%. The fact that participants in 403(b) plans hold a considerably higher proportion of their assets in fixed income vehicles than is the case for private sector 401(k) plans accounts for their coming through the 2008 financial crisis with less of an impact on their holdings. Assets of 403(b) plans are projected to grow at an average annual rate of 7%-9% over the next 5 years.

IRA assets grew at an average annual rate of 7.7% over the past five years, fueled largely by rollovers from qualified plans. Meanwhile, individual retirement accounts (IRAs) hold another $4.8 trillion of retirement savings. Both rollovers from the increasing number of Baby Boomers retiring over the next five years as well as contributions to traditional IRAs, will keep the overall growth rate of IRA assets stronger than that of defined contribution plans, Spectrem asserted.

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