The Markets March 27, 2008

Many Have Access to Asset-Allocation Funds, But…

Almost 60% of retirement plan participants responding to a recent survey said they have an asset-allocation investment option in their plan.
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A Spectrem Group research report, “Participant Asset Allocation Trends: Target Date and Lifestyle Funds,’ said that of the 59% who could choose one of the immensely popular funds:

  • 14% had access to lifestyle options,
  • 9% could opt for target-date portfolios, and
  • 36% had both as options.

Of participants with asset-allocation option access, 39% have no money in them and 22% have invested a portion of their accounts in those choices. Of the participants that do not currently have an asset-allocation fund available to them, only 9% indicated they were “likely” to invest in them if they were made available, while 21% said they were “unlikely” to choose them. Forty one percent said they did not know.

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Some 59% of participants said their whole investment approach has not changed in the last several years, while 24% have become more aggressive and 17% more conservative.

Spectrem said participants were asked to rate various fund selection criteria on a scale of importance, and the top four were:

  • Fund expenses (64%),
  • Past performance (60%),
  • the specific companies in which the fund invests (60%), and
  • the fund’s risk level (60%).

Asked to specify only one most important metric, past performance was the clear winner (41%), while the guarantee of a minimum return was second (17%). Fund expenses came in second to last at 6%.

Somewhat contradicting general industry thought, almost one-quarter (22%) of retirement plan participants say they are “very’ interested in managing their personal finances and investments, and 48% say they have “some” interest. According to the research report, only 4% of participants were “not at all’ interested.

Only 10% of participants reported they view themselves as “very knowledgeable’ about finance and investments and 51% consider themselves “somewhat knowledgeable.’ Eight percent indicated they consider themselves total novices.

A total of 400 plan participants were surveyed online during January and February 2007.

Data & Research March 27, 2008

U.S. Retirement Plan Assets Doubled in Last Decade

Retirement plan assets in the U.S. have nearly doubled in value since 1997, according to Watson Wyatt Worldwide’s 2008 Global Pensions Asset Study.
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A press release said the study found that assets in U.S. pension funds, 401(k)s, individual retirement accounts (IRAs), and other retirement savings vehicles have increased from $7.9 trillion in 1997 to $15 trillion in 2007.

Growth rates for retirement assets worldwide began slowing in 2007, Watson Wyatt said. In the 11 countries with the largest workplace retirement systems, the estimated growth rate for retirement assets was only 2% in 2007 – a significant decrease from the 10.5% growth rate for the five-year period ending in 2007 and from the 7.4% per annum growth of the prior 10 years.

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However, U.S. short-term returns were better, with retirement assets growing 8.3% in 2007 and 10.9% over five years. U.S. retirement assets make up an estimated 60% of assets in the 11 countries, although the U.S. share has been declining slowly.

In the United States, most retirement plan assets (59%) are invested in equities, while less than a quarter (23%) are in bonds, and 17% in alternative assets, including hedge funds, private equity, real estate, commodities, and infrastructure. The amount of assets invested in equities has remained relatively stable over the last 10 years, but the portion in alternative investments has grown from 9% in 1997 and the share in bonds has declined from 33% in 1997.

Over the last 10 years, in the U.S. the share of retirement plan assets in defined contribution plans such as 401(k)s and individual retirement accounts has increased from 47% to 56%.

The Global Pension Assets Study analyzes retirement plan assets in the United States, Australia, Canada, France, Germany, Hong Kong, Ireland, Japan, Netherlands, Switzerland, and the United Kingdom.

A report of the study results can be downloaded from http://www.watsonwyatt.com/globalpensionassets. A free registration is required.

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