In Practice December 11, 2007

Plan Rollovers Fuel Surge in IRA Growth

A new study finds growth in individual retirement accounts (IRAs) continues to be fueled by rollovers from employer retirement plans – about $200 billion annually – with new IRA contributions significantly smaller by comparison.
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A news release from the Employee Benefit Research Institute (EBRI) said IRA assets exploded in 2006, with a whopping 16.5% hike to a record $4.23 trillion, an increase from $3.63 trillion in 2005. That 2006 performance gave more weight to the notion that IRAs are now the largest repository of U.S. retirement funds, according to EBRI.

Compared to IRAs, private-sector defined contribution plans in 2006 held assets of $3.27 trillion and private-sector defined benefit programs held $2.26 trillion in assets. EBRI said assets in IRAs have bested those in private-sector DC and DB plans each year since 2001.

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According to the EBRI study, IRA asset growth has been mostly in mutual funds and self-directed brokerage accounts, with IRA market share shrinking for banks and thrifts. In 2006, almost half (47%) of all IRA assets were held in mutual funds.

Assets in IRAs saw 1990s annual growth of 17.2%, the release said. After a retrenchment during the recession of 2000 – 2002, IRA assets grew at annual rates of 18.2%, 9.7%, and10.6%, respectively. In 2002, IRA rollovers totaled $204.4 billion, following rollover totals of $225.6 billion in 2000, and $187.8 billion in 2001.

The EBRI report is available here.

The Markets December 11, 2007

Columbia Shutters Strategic Cash Portfolio

Columbia Management, a unit of Bank of America Corp., is shuttering its $12-billion Strategic Cash portfolio saying major institutional clients headed for the exits because of losses on complex asset-backed securities.
Reported by

A Wall Street Journal report said the Strategic Cash portfolio had $40 billion in assets a few months ago.

The fund was an enhanced money fund, a short-term investment pool that offered higher yields than more traditional cash investment offering, according to the WSJ. However, unlike traditional money-market funds, the Strategic Cash fund did not guarantee it would maintain a $1-per-share net asset value, even though the fund was managed toward achieving that goal.

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The fund’s current net asset value is $0.994 per share, officials said, according to the Journal.

Large investors will be redeemed “in kind,” which means they will be handed their share of the underlying securities. Smaller investors can take out cash, the news report said.

The Strategic Cash portfolio was open to investors with a minimum of $25 million.

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