401k and Defined Contribution Plans - US - October 2007

Table of Contents

• Scope and ThemesWhat you need to know
• Abbreviations and terms
• Abbreviations
• Terms
• Executive Summary
• Industry overview
• Market overview
  • Figure 1: DC plan assets, 1996-2006
• Small businesses
• Automatic enrollment
• Investment trends
• Recent legislation
• New products in the marketplace
• The Mintel 401(k) consumer survey
  • Figure 2: Attitudinal differences between 401(k) owners and non-owners, January-October 2006
• Market Drivers--Enrollment and Investment Issues
• Enrollment and participation rates stagnating
• Impact of automatic enrollment
  • Figure 3: Employer reasons for not adopting automatic enrollment in the future, 2007
• Permanent status for the Roth 401(k)
  • Figure 4: Reasons for employers not adopting Roth 401(k) in near future. February 2007
• Popularity of IRAs and impact of rollovers
• Emergence of the CIT
• Inroads made by ETFs
• Lifecycle and lifestyle funds re-energized by PPA
  • Figure 5: Percentage of assets in lifecycle and lifestyle funds, IRAs and employer-sponsored DC plans, 1997-2006
• DC plans using advisors as intermediaries
  • Figure 6: Type of advisor used by employers to evaluate investment options, 2007
  • Figure 7: Items of importance in selecting or evaluating a DC plan provider (ratings), 2007
  • Figure 8: Default investment using automatic enrollment, 2007
• Investment-only business
• Rising awareness of healthcare costs as part of retirement savings
• Matching contributions
• Automatic enrollment
• "Prepackaged" advice
• Targeting efforts toward the next generation of retirement savers
• Market Drivers--Desired Plan Benefits and Use of Advisors
• What employees care about
  • Figure 9: Employees: Importance of benefits offered, February 2007
  • Figure 10: Employers: Importance of benefits offered, February 2007
  • Figure 11: Employees: Likelihood of switching to company with retirement plan, February 2007
  • Figure 12: Employees: Importance of matching contribution, February 2007
  • Figure 13: Employees: Matching contribution offered, February 2007
• Participants' use of advisors and need for advice
  • Figure 14: Employees: Have a professional financial advisor, February 2007
  • Figure 15: Employees: Services of professional financial advisor, February 2007
  • Figure 16: Employees: Rely on outside experts, February 2007
• What employers are doing about advice
  • Figure 17: Employer: Company preference for usage of guidance/advice, February 2007
  • Figure 18: Employer: Reasons for not offering investment guidance/advice, February 2007
  • Figure 19: Employer: Entity that should be most accountable for selecting and monitoring investment options in a retirement plan, February 2007
  • Figure 20: Employer: What is offered to help transition employees, February 2007
• Market Drivers--Legislative Developments
• 403(b)s to be more like 401(k)s
• Automatic IRAs
• Proposal to make index funds mandatory for 401(k)s
• Decline of the defined benefit plan
• What plan sponsors are doing
  • Figure 21: Reasons not to offer employee funded retirement plan in next two years, February 2007
  • Figure 22: Length of time with current plan administrator, February 2007
  • Figure 23: Changes to plan in past 12 months, February 2007
  • Figure 24: Types of changes to 401(k) plans in last 12 months, February 2007
• Other Market Drivers
• Tax-exempt workers
• Small businesses
• Growing popularity of socially responsible funds
• Behavioral finance begins to play a role
• Non participation and financial behavior
  • Figure 25: Retirement confidence survey, 2007
  • Figure 26: Expected standard of living during first five years of retirement, 2007
• Market Size and Segmentation
• Types of pension plans and market penetration
  • Figure 27: Defined contribution plan assets, 1996-2006
• 401(k)s
  • Figure 28: Top defined contribution plan managers, 2006
• Mutual fund classes
  • Figure 29: Mutual fund retirement assets by type of account and fund, year end 2006
  • Figure 30: DC record keepers, by total record kept assets, 2007
  • Figure 31: DC record keepers, by percentage increase in record kept assets, 2005-06
  • Figure 32: DC record keepers, by number of record kept plans, 2007
  • Figure 33: DC record keepers, by total record kept participants, 2007
  • Figure 34: DC record keepers, by record kept assets in 401(k) plans, 2007
  • Figure 35: DC record keepers, by record kept assets in 403(b) plans, 2007
  • Figure 36: Percentage share of total 403(b) plan assets, by type of institution, 1996-2006
  • Figure 37: DC record keepers, by record kept assets in 457 plans, 2007
  • Figure 38: DC record keepers, by record kept assets per plan, 2007
  • Figure 39: DC record keepers, by new plans won in 2006
• Distribution of assets in the DC plans
  • Figure 40: Where U.S. retirement assets are held, year end 1996 -2006
  • Figure 41: Defined contribution plan assets held in mutual funds vs. other investments, 1996-2006
• IRAs
  • Figure 42: Source of IRA assets, by percent of total IRA assets, year-end 2004
  • Figure 43: where IRA assets are held, percentage share by type of institution, 1996-2006
• Age and worker tenure
  • Figure 44: Percentage of plan participants, by age, August 2007
  • Figure 45: Percentage of plan participants, by job tenure, August 2007
• Asset allocation by participants in DC plans
• Lifecycle and lifestyle funds
  • Figure 46: Lifecycle fund assets and market share -- top five complexes as of July 2007
• Levels of DC plan participation
  • Figure 47: Participation in defined contribution retirement plans by selected worker and establishment characteristics, private industry, 2006
  • Figure 48: Percentage of salary toward retirement this year, February 2007
  • Figure 49: Changed percentage of contribution in past 12 months, February 2007
• Account balances
  • Figure 50: Average account balance, by age and tenure, 2006
  • Figure 51: Median account balance among long-tenured participants, by age and salary, 2006
• Asset allocation strategies
  • Figure 52: Level of understanding of asset allocation, February 2007
  • Figure 53: Current retirement savings allocation, February 2007
  • Figure 54: Average asset allocation of 401(k) accounts, by participant age (% of account balances), 2006
  • Figure 55: Distribution of 401(k) plans, participants and assets by investment options, 2006
• Competitive Landscape
• New products in the marketplace
• Lifecycle funds
• Additional savings programs
• Advice products
• Rollovers
• Retirement Income through annuity-type products
• Behavioral finance initiatives
• Advertising and Promotion
  • Figure 56: Top 10 mutual fund advertisers, advertising spend, January-May 2007
• Notable print and direct mail advertising
  • Figure 57: fidelity low-cost annuity print advertisement, October 2007
  • Figure 58: e401(k) Retirement Plan from Fidelity Investments, enrollment mailer, August 2007
  • Figure 59: TIAA-CREF print advertisement, October 2007
  • Figure 60: Retirement funds from Vanguard print advertisement, July 2007
  • Figure 61: TD Ameritrade target date exchange traded funds print advertisement, October 2007
• The Consumer--Who Owns What and How Much is Invested
• 401(k) plan participant demographics
• Types of plans owned
  • Figure 62: Ownership of retirement plans, by gender, August 2007
  • Figure 63: Ownership of retirement plans by age, August 2007
  • Figure 64: Ownership of retirement plans by income, August 2007
  • Figure 65: Ownership of retirement plans by race/ethnicity, August 2007
  • Figure 66: Ownership of DC retirement plans by level of education, August 2007
  • Figure 67: Ownership of DC retirement plans by employment status, August 2007
• Household assets in retirement accounts
  • Figure 68: Total invested in all of household' s retirement accounts (such as 401(k), IRA, etc.), by gender, August 2007
  • Figure 69: Total invested in all of household' s retirement accounts (such as 401(k), IRA, etc.), by age, August 2007
  • Figure 70: Total invested in all of household' s retirement accounts (such as 401(k), IRA, etc.), by income, August 2007
  • Figure 71: Total invested in all of household' s retirement accounts (such as 401(k), IRA, etc.) by race/ethnicity, August 2007
  • Figure 72: Total invested in all of household' s retirement accounts (such as 401(k), IRA, etc.), by presence of children, August 2007
• Retirement savings: Attitudinal differences
  • Figure 73: Attitudinal differences between 401(k) owners and non-owners, January-October 2006
• The Consumer--Types of Investments and Planning Undertaken
• Retirement savings: Financial planning activities
  • Figure 74: Types of financial planning done, by gender, August 2007
  • Figure 75: Types of financial planning done, by age, August 2007
  • Figure 76: Types of financial planning done, by income, August 2007
  • Figure 77: Types of financial planning done, by race/ethnicity, August 2007
• Consumers and lifecycle funds
  • Figure 78: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by gender, August 2007
  • Figure 79: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by age, August 2007
  • Figure 80: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by income, August 2007
  • Figure 81: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by race/ethnicity, August 2007
• Consumers and investment decision making
  • Figure 82: Primarily make the decisions in household as to how retirement savings should be invested, by gender, August 2007
  • Figure 83: Primarily make the decisions in household as to how retirement savings should be invested, by age, August 2007
  • Figure 84: Primarily make the decisions in household as to how retirement savings should be invested, by income, August 2007
  • Figure 85: Primarily make the decisions in household as to how retirement savings should be invested, by race/ethnicity, August 2007
• Consumers and use of advisors
  • Figure 86: I pay an independent advisor to manage my account for me, by age, August 2007
  • Figure 87: I pay an independent advisor to manage my account for me, by income, August 2007
  • Figure 88: I pay an independent advisor to manage my account for me, by race/ethnicity, August 2007
  • Figure 89: I would be interested in having someone manage my account for me for a flat fee, by gender, August 2007
  • Figure 90: I would be interested in having someone manage my account for me for a flat fee, by age, August 2007
  • Figure 91: I would be interested in having someone manage my account for me for a flat fee, by income, August 2007
  • Figure 92: I would be interested in having someone manage my account for me for a flat fee, by race/ethnicity, August 2007
  • Figure 93: Percentage who have obtained advice from a financial professional in the past year
• The Consumer--Incidence of Changing Investments and Views on Retirement Plan Options
• Consumers and involvement in monitoring retirement accounts
  • Figure 94: I have changed the investments in my retirement portfolio in the last year, by gender, August 2007
  • Figure 95: I have changed the investments in my retirement portfolio in the last year, by income, August 2007
• Consumers and the number of investment options in their plans
  • Figure 96: I feel that there are not enough investment options in my retirement plan, by gender, August 2007
  • Figure 97: I feel that there are not enough investment options in my retirement plan, by age, August 2007
  • Figure 98: I feel that there are not enough investment options in my retirement plan, by race/ethnicity, August 2007
• Are there too many options?
  • Figure 99: I feel there are too many options in my retirement plan, by age, August 2007
  • Figure 100: I feel there are too many options in my retirement plan, by income, August 2007
  • Figure 101: I feel there are too many options in my retirement plan, by race/ethnicity, August 2007
  • Figure 102: I feel there are too many options in my retirement plan, by marital status, August 2007
• Consumers and use of the Internet for decision making
  • Figure 103: I use information from sources on the Internet to make decisions about my retirement savings, by age, August 2007
  • Figure 104: I use information from sources on the Internet to make decisions about my retirement savings, by income, August 2007
• Consumers and level of understanding of investment options in their plans
  • Figure 105: I understand all of the investment options offered in my retirement savings plan, by gender, August 2007
  • Figure 106: I understand all of the investment options offered in my retirement savings plan, by income, August 2007
• Consumers and account monitoring
  • Figure 107: I do not pay as much attention to my retirement portfolio as I should, by gender, August 2007
  • Figure 108: I do not pay as much attention to my retirement portfolio as I should, by age, August 2007
• The Consumer--Interest in Guaranteed Products and ETFs
• Consumers and guaranteed products
  • Figure 109: Interested in mutual funds that incorporate a guarantee component, by age, August 2007
  • Figure 110: Interested in mutual funds that incorporate a guarantee component, by income, August 2007
  • Figure 111: Interested in mutual funds that incorporate a guarantee component, by race/ethnicity, August 2007
• Consumers and exchange traded funds
  • Figure 112: Interest in exchange traded funds for retirement accounts, by age, August 2007
  • Figure 113: Interest in exchange traded funds for retirement accounts, by income, August 2007
  • Figure 114: Interest in exchange traded funds for retirement accounts, by race/ethnicity, August 2007
• The Consumer--Who They Turn to for Retirement Advice and Why
• Consumers and trust: Who they rely on for retirement advice
  • Figure 115: Most trusted to give good retirement planning advice, by age, August 2007
  • Figure 116: Most trusted to give good retirement planning advice, by income, August 2007
  • Figure 117: Most trusted to give good retirement planning advice, by race/ethnicity, August 2007
• What inspires consumers' trust
  • Figure 118: Why consumers trust an organization the most, by gender, August 2007
  • Figure 119: Why consumers trust an organization the most, by age, August 2007
  • Figure 120: Why consumers trust an organization the most, by income, August 2007
• Future Trends and Forecast
• "Automatic" solutions
• "Single Decision" investment options
• Rise of the Roth
• Increased access to advice
• Expanding role of advisors
• Increased interest in offering investment only business
• Emphasis on retirement income solutions
• Increased competition for rollover IRAs
• Increased availability of CITs and ETFs
• Increased emphasis on the Internet to facilitate retirement planning
• Defined Contribution retirement plans for small employers
• More targeted approach to encouraging retirement plan participation
• Healthcare as part of retirement savings
• Appendix: Trade Associations
• Investment Company Institute
• Employee Benefits Research Institute
• 401(k) Council for America
• Society of Professional Administrators and Recordkeepers (SPARK)
• American Association of Retired Persons