Workplace Plans Hold 65% of Total U.S. Retirement Assets

According to an ICI report of 2008 data, investors held $3.5 trillion in defined contribution plans, accounting for 39% of employer-sponsored plan assets. Meanwhile, private-sector employer-sponsored defined benefit plans, with $2 trillion, accounted for 22% of employer-sponsored plan assets in 2008. In addition, state and local government defined benefit plans held $2.3 trillion and federal pension plans held $1.2 trillion.

ICI said in 2008 investors held $2.4 trillion in 401(k) plans and $1.2 trillion in non-401(k) DC plans.

At year-end 2008, investors relied on mutual funds to manage $1.5 trillion in DC plan assets: $1.1 trillion in 401(k) plans, $260 billion in 403(b) plans, $50 billion in 457 plans, and $142 billion in other DC plans. Overall, mutual funds managed 47% of assets in 401(k) plans, 45% of the assets in 403(b) plans, 36% of 457 plan assets, and 31% of other DC plan assets. Mutual fund shares held in 403(b) plans include both variable annuity (VA) mutual fund shares totaling $144 billion and non-VA mutual fund shares of $116 billion.

IRAs represented the largest component of the retirement market, with $3.6 trillion in assets accounting for 26% of U.S. retirement market assets in 2008. Another $1.4 trillion, or 10%, of retirement assets were investments in annuity contracts—both variable and fixed annuities—held outside of retirement accounts.

Total U.S. retirement assets were $14 trillion at year-end 2008, down $3.9 trillion, or 22%, from year-end 2007. The decline in retirement assets largely was driven by investment returns.

Most Asset Classes Headed South

The statistical report also indicated that:

• Nearly all asset classes experienced negative total returns in 2008. Large capitalization domestic equities experienced negative total returns of 37%; small capitalization domestic equities, -34%; foreign equities, -45%; corporate bonds, -6%; municipal bonds, -3%; and Treasury inflation-protected securities (TIPS), -1%, inclusive of a negative 8% total return from March 10 to the end of the year.
• 88% of the assets of lifecycle mutual funds were held in retirement accounts at year-end 2008.
• IRA assets fell $1.1 trillion, or 24%; DC plan assets fell $985 billion, or 22%; state and local pension plan assets fell $858 billion, or 27%; and private-sector DB plan assets fell $734 billion, or 27%.
• Total federal government pension assets, which were primarily invested in nonmarketable government securities were the exception, edging up 2% in 2008.
• ICI combines data from its mutual fund survey database and from other trade associations with data from the U.S. Department of Labor and the Federal Reserve Board to estimate both the employer-sponsored retirement plan system’s holdings and those of annuities held outside retirement plans.

Detailed total IRA asset information for 2004 and some earlier years from the Internal Revenue Service (IRS) Statistics of Income Division also help complete the picture of the total U.S. retirement market, along with ICI estimates of the total IRA market completing the data through 2008.