The Markets May 9, 2008

Retirement Assets Exceeded $17 Trillion in 2007

Americans held $17.6 trillion in retirement assets at the end of 2007, up $1.1 trillion from year-end 2006, according to a report from the Investment Company Institute (ICI).
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It was an increase of $1.1 trillion from year-end 2006 (see Retirement Assets Continue Growth in 2006).

ICI reported in the 2008 Investment Company Fact Book that strong growth in Individual Retirement Accounts (IRAs) and employer-sponsored defined contribution plans powered the 7% increase. At year-end 2007, investors held $9.2 trillion in IRAs and DC plans about half of the entire retirement market, ICI said.

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IRA assets rose 12% to $4.7 trillion in 2007. Of those assets, $2.2 trillion were invested in mutual funds. Assets held in DC plans rose 8% to $4.5 trillion, with $2.4 trillion invested in mutual funds. The most popular type of DC plans were 401(k)s, with $3 trillion in assets.

Mutual Funds

Mutual funds managed $4.6 trillion or 26% of retirement market assets. The remaining $13 trillion of assets were managed by pension funds, insurance companies, and brokerage firms.

More than 90% of mutual-fund owning households reported that they are saving for retirement. Three-fifths of mutual-fund owning households invest in funds through an employer-based retirement plan such as a 401(k), and 57% of the households that own mutual funds purchased their first fund through an employer-sponsored retirement plan.

Lifecycle Funds

Net new cash flow into lifestyle and lifecycle funds reached a record $92 billion in 2007.

Assets in lifecycle funds rose 61% to $183 billion, and 88% of these assets were held in retirement accounts. Assets in lifestyle funds reached $238 billion, of which 45% were held in retirement accounts.

401(k)s

401(k) assets invested in mutual funds are concentrated in lower-cost funds. More than three-quarters of the 401(k) assets invested in stock funds are invested in funds with expense ratios of less than 1%.

ICI publications can be accessed here.

Compliance May 9, 2008

UBS Agrees to Repay Investors of Risky Securities

UBS Financial Services Inc. reached an agreement with Massachusetts Attorney General Martha Coakley to return $37 million to 17 cities and towns, as well as to the Massachusetts Turnpike Authority, for allegedly misleading them about investments they thought were safe.
Reported by

Coakley found that the brokerage firm had not fully disclosed the risks of the investments, called auction-rate securities, The Boston Globe reports. Cities were unable to get their money when the market for these investments failed almost overnight.

The settlement was the first admission by UBS or any U.S. brokerage that something may have been amiss in the sales of municipal debt securities, according to the news report. The market for these securities relied on weekly and monthly auctions run by brokerage firms, and the market failed when the auctions began attracted only sellers and no buyers in February.

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UBS spokeswoman Karina Byrne told The Globe the settlement was a one-time event, based on a state law that requires towns and cities keep cash in only highly liquid accounts that are readily accessible. Byrne said the agreement addressed the Attorney General’s finding that the securities were “not permissible” in municipal accounts.

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