Retirement Assets Near Pre-Recession Levels: Spectrem

401(k) plans are primary private sector DC plan

Retirement plans, though not quite at their pre-recession levels, are getting there, a report released Tuesday by The Spectrem Group found. Assets rose 11% to $10.2 trillion in 2010, following an 18% rise in 2009.

Somewhat surprisingly, defined-benefit plans are recovering most quickly, according to Spectrem; 84% of public sector retirement plan assets are held in defined-benefit plans, and have grown every year since 2005 except for 2008.  The report noted that the current focus on limiting government spending will likely result in lower asset growth for employer-funded plans.

Defined-contribution plans account for 62% of assets in private sector plans, and are favored by unions. Among corporate plans, defined-contribution plans have almost twice the assets of defined-benefit plans.

The financial crisis certainly dampened defined-benefit plan growth, however. While assets in private sector DB plans are growing, they are not at pre-recession levels; in fact, they've barely surpassed 2005 levels, and growth is expected to continue falling. Defined-contribution plans, on the other hand, have grown just under 5% in the last five years, and – assuming we don't experience another financial crisis – should continue growing over the next five years.

401(k) plans are the primary private sector defined-contribution plan, according to the report. Although most plans have fewer than 50 participants, assets are concentrated in plans with over 1,000 participants. New plans are expected to grow between 2% and 3% on average, especially among small companies. Asset growth is expected to grow between 8% and 10% over the next five years.

Spectrem calls small companies the "engine of growth" for 401(k) plans. The cost of a plan is the main reason for companies switching provider, followed by investment and service issues. Just 5% of small companies said the plan design or features was the main reason for switching providers.

Almost one-quarter of plan sponsors use a full service broker to help them choose a new plan provider, but RIAs made a strong showing at 17%.

Diversified equities account for over one-third of 401(k) plan assets, followed by nearly a quarter of assets in stable value. Asset allocation funds like target-date, target risk and traditional balanced funds, continue to grow in popularity with participants.

Over the past five years, IRA assets have grown at an average annual rate nearly 8%, and Spectrem predicts the overall growth rate will be stronger than that of defined-contribution plans thanks to rollovers from large numbers of baby boomers, as well as contributions to traditional IRAs.

While there are movements to reinstate matching contributions, the number of companies that offer matching and the average match amount are below what they were in 2007.

Just 12% of people who expect to retire in the next seven years said they had more than $1 million saved, while 22% confess they have less than $300,000. Most plan participants will use a financial advisor to help them set up an income solution for retirement.

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