Data & Research March 25, 2015

ICI Measures Retirement Assets at $24.7 Trillion

Total U.S. retirement assets grew 6% during 2014, according to the Investment Company Institute.
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An analysis from the Investment Company Institute (ICI) finds retirement assets of U.S. investors reached $24.7 trillion as of December 31, up 1.7% during the year’s final quarter and 6% from year-end 2013.

With the year-end 2014 results, retirement assets now account for approximately 36% of all household financial assets in the United States, ICI says.  

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Assets in individual retirement accounts (IRAs) totaled $7.4 trillion at the end of the fourth quarter, an increase of 1.4% from the end of the previous quarter. Defined contribution (DC) plan assets rose 2.1% in the fourth quarter, to $6.8 trillion, ICI notes.

Government defined benefit (DB) plans—including federal, state and local government plans—held $5.2 trillion in assets at the end of December, for a 1.9% increase over the end of September. Private-sector DB plans held $3.2 trillion in assets at the end of the fourth quarter, and annuity reserves outside retirement accounts accounted for another $2 trillion.

Overall, Americans held $6.8 trillion in all employer-based DC retirement plans on December 31, of which $4.6 trillion was held in 401(k) plans. ICI says those figures were $6.6 trillion and $4.5 trillion, respectively, as of September 30. In addition to 401(k) plans, at the end of the fourth quarter, $560 billion was held in other private-sector DC plans, $951 billion in 403(b) plans, $261 billion in 457 plans, and $427 billion in the Federal Employees Retirement System’s Thrift Savings Plan (TSP). 

Mutual funds managed $3.7 trillion, or 55%, of assets held in DC plans at the end of December.

The IRAs asset total of $7.4 trillion is up from $7.3 trillion at the end of the third quarter of 2014. Forty-eight percent of IRA assets, or $3.5 trillion, is invested in mutual funds, ICI says.

Other findings show retirement entitlements have increased in the past year as well. As noted by ICI, entitlements include both retirement assets and the unfunded liabilities of DB plans. To the extent that pension plan assets are insufficient to cover accrued benefit entitlements, a DB pension plan has a claim on the plan sponsor.

As of December 31, U.S. total retirement entitlements were $27.8 trillion, including $24.7 trillion of retirement assets and another $3.1 trillion of unfunded liabilities. Including both retirement assets and unfunded liabilities, retirement entitlements accounted for 41% of the financial assets of all U.S. households at the end of December, ICI finds.

Unfunded liabilities are a larger issue for government DB plans than for private-sector DB plans, ICI says. As of the end of the fourth quarter, unfunded liabilities were 1% of private-sector DB plan entitlements, 25% of state and local government DB plan entitlements, and 56% of federal DB plan entitlements.

Data & Research March 25, 2015

DC Consultants Focused on Income Questions

Meeting income objectives in retirement is key for target-date funds, according to 401(k) consultants polled by PIMCO.
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Evaluating glide path structures, fees, diversification of underlying investments and the probability of meeting retirement income objectives are target-date fund (TDF) investing steps deemed important by nearly all 58 consulting firms surveyed recently by PIMCO.

The firm recently released its ninth annual defined contribution consultant survey, revealing more than one-third (35%) of 401(k) consultants say the most important objective when evaluating TDF glide paths is maximizing asset returns while minimizing volatility relative to the retirement liability. 

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Additionally, 31% rank maximizing income replacement during retirement as the top goal for glide paths. None of the firms surveyed reported maximizing expected retirement savings balances as the most important objective.

Rather than being too focused on maximizing the size of their savings, “consultants increasingly want target-date funds structured so they can meet an investor’s income objectives when they retire,” explains Stacy Schaus, executive vice president and PIMCO’s defined contribution practice leader. “They clearly prefer strategies that will minimize the risk of a plan participant falling short when she retires.”

When evaluating income replacement distributions, a significant majority (85%) of consultants say that a tighter distribution is more attractive in the current environment. Schaus says this results in less risk, but also less opportunity for gains.

The “Defined Contribution Consulting Support and Trends” survey found 93% of consultants believe adding diversifying fixed-income strategies is important or very important. They also strongly favor active management over index-tracking passive strategies as the preferred investment style when allocating to most asset classes, including bonds, emerging market equities and global asset-allocation strategies.

More than half recommend considering a multi-strategy liquid alternatives, while more than two-thirds recommend considering inflation-protection securities in order to help safeguard participant assets.

The survey includes data from 58 consulting firms across the U.S. serving over 8,500 clients with aggregate defined contribution assets in excess of $3.2 trillion. For additional survey highlights or other PIMCO DC publications, contact PIMCO at 888-845-5012 or pimcodcpractice@pimco.com.

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