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ICI's Retirement Numbers

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The government and policymakers must work together if the 401(k) plan is going to remain the dominant private-sector device for retirement savings, said Paul Schott Stevens, president of the Investment Company Institute (ICI), at the ICI’s 50th annual conference May 7.

Stevens urged retirement plan participants with mutual fund investments to “stay the course” in these tough times for the markets. He noted that the average account balance of workers who remained in the same 401(k) plan from 1999 to 2006–a period that included a serious bear market–jumped nearly 80%, from $67,800 to $121,000 including contributions.

Indeed, James Riepe, senior advisor and retired vice chairman of T. Rowe Price, who moderated a panel discussion on May 8, noted that the size of the retirement market is huge, with $18 trillion now invested in tax-deferred retirement accounts. The ICI’s own numbers show that at year-end 2007, investors held $9.2 trillion in IRAs and defined contribution plans.

In 2007, ICI says that assets in IRAs rose 12% to $4.7 trillion, of which $2.2 trillion was invested in mutual funds. Assets held in defined contribution plans rose 8% last year to $4.5 trillion, ICI says, while mutual funds accounted for $2.4 trillion of that total. The most popular type of defined contribution plan last year, ICI says, was the 401(k), totaling $3 trillion in assets.

Cathy Heron, senior VP and senior counsel at Capital Research and Management Company, says that she expects to see legislation that addresses 401(k) fee disclosure as well as a bill that provides some sort of remedy to those workers who don’t have access to retirement plans.

On a separate panel addressing the changing world of investing, Jack Brennan, chairman and CEO of Vanguard, asked panelists if index funds and ETFs posed a threat to traditional mutual funds. Arthur Zeikel, the retired chairman of Merrill Lynch, responded in the affirmative, but Mellody Hobson, president of Ariel Capital Management, argued that the industry has “overdone it” in creating index funds, adding that there’s been too much “slicing of the market.”

Zeikel opined that ETFs pose a lesser threat. “ETFs can be traded all day and not accomplish anything,” he said. As for so-called actively managed ETFs: “Actively managed ETFs fly in the face of logic–that you can actively manage an ETF.