Contribution, Asset Allocation, Contribution, Asset Allocation, Loan and Withdrawal Activity Loan and Withdrawal Activity
Among Retirement SaversAmong Retirement Savers
Contribution, Asset Allocation, Contribution, Asset Allocation, Loan and Withdrawal Activity Loan and Withdrawal Activity
Among Retirement SaversAmong Retirement Savers
Remarks for the
Dartmouth College SymposiumHow to Increase Effectiveness of
Financial Education
Sarah HoldenInvestment Company Institute
Jack VanDerheiTemple University, EBRI Fellow
October 17, 2005
2
OverviewOverviewOverviewOverview
• 401(k) Participants The Participation Decision Contributions Asset Allocation Loans and Withdrawals
• What Can 401(k) Accumulations Generate at Retirement?
• IRA Owners The Participation Decision Contributions Asset Allocation Withdrawals
• Appendix Job Change and Retirement
• Bibliography
3
The 401(k) Participation The 401(k) Participation DecisionDecision
The 401(k) Participation The 401(k) Participation DecisionDecision
• Choi, Laibson, Madrian & Metrick (July 2004)
• Fidelity Investments (2004)
• Automatic enrollment increases participation rates, especially among lower income workers (see Holden & VanDerhei (July 2005) for discussion and references)
• ICI (Spring 2000) 401(k) Household Survey Asked Why Participated and Why Didn’t
4
Reasons for Participating in the Reasons for Participating in the 401(k) Plan401(k) Plan1,21,2
Reasons for Participating in the Reasons for Participating in the 401(k) Plan401(k) Plan1,21,2
10%
15%
19%
23%
55%
64%
67%
85%
Advice from fellowemployees
Advice of friend or familymembers
Ability to take a loan from theplan
Ability to make a hardshipwithdrawal from the plan
Payroll deduction feature
Tax-deferred status ofcontributions
Company match
Concern about fundingretirement
3
3
1Percent of 401(k) plan participants indicating reason was “very important.”2Multiple responses included. Number of respondents varies.3Asked of those offered the feature.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000
3
5
Reasons for Not Participating Reasons for Not Participating in the 401(k) Planin the 401(k) Plan1,21,2
Reasons for Not Participating Reasons for Not Participating in the 401(k) Planin the 401(k) Plan1,21,2
31%
32%
36%
57%
66%
Advice from a family member,friend, or professional
financial advisor
401(k) plan's features areconfusing
401(k) plan has features therespondent does not like
Household is saving forretirement in some other way
Respondent does not haveextra money to save
1Percent of 401(k) plan non-participants indicating reason was “very” or “somewhat” important.2Multiple responses included. Number of respondents varies.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000
6
401(k) Plan Education Primary 401(k) Plan Education Primary PurposePurpose
(percent of plans)
401(k) Plan Education Primary 401(k) Plan Education Primary PurposePurpose
(percent of plans)
6%
5%
26%
11% 15%
38% Increase Participation
OtherIncrease Employee Appreciation for the
Plan
Introduce Plan Changes
Improve Asset Allocation
Increase Deferrals (Employee Contributions)
Note: Components do not add to 100 percent because of rounding.Source: Profit Sharing/401(k) Council of America (PSCA), 48th Annual Survey of Profit Sharing and 401(k) Plans: Reflecting 2004 Plan Experience, 2005
7
EBRI/ICI Participant-Directed EBRI/ICI Participant-Directed Retirement Plan Data Collection ProjectRetirement Plan Data Collection Project
EBRI/ICI Participant-Directed EBRI/ICI Participant-Directed Retirement Plan Data Collection ProjectRetirement Plan Data Collection Project
• Collaborative effort of the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI)
• Have collected annual data for 1996–2004 from a variety of recordkeepers covering a variety of plans
• 16.3 million 401(k) participants in 2004 (38% of the 401(k) universe)
• 45,783 plans in 2004 (10% of universe)
• $926.2 billion in assets in 2004 (44% of universe)
• Representative sample of the universe
• Analyze account balances, asset allocation, and loan activity in annual updates.
• Special Reports—contribution activity, EBRI/ICI 401(k) Accumulation Projection Model
Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005 and September 2005—Appendix))
8
401(k) Plan Participant 401(k) Plan Participant Contribution ActivityContribution Activity
401(k) Plan Participant 401(k) Plan Participant Contribution ActivityContribution Activity
• What influences 401(k) plan participants’ contribution activity?
• 401(k) Participants Respond to “Corner” Points EGTRRA Catch-Up Contributions Automatic Enrollment Defaults Internal Revenue Code Limit Match Level for Employer Contribution
Age Loan Provision
Tenure Employer Match
Income Limits and Nondiscrimination Testing
9
Among Participants Making Among Participants Making Contributions, Percentage of Contributions, Percentage of
Participants at 402(g) Limit by SalaryParticipants at 402(g) Limit by Salary1,21,2
Among Participants Making Among Participants Making Contributions, Percentage of Contributions, Percentage of
Participants at 402(g) Limit by SalaryParticipants at 402(g) Limit by Salary1,21,2
11%
39%
22%18%
13%
7%
2%
$60,000 orless
>$60,000to $70,000
>$70,000to $80,000
>$80,000to $90,000
>$90,000to
$100,000
>$100,000 All
Salary Range
Non-Highly Compensated Employees Highly Compensated Employees
1Percent of participants in salary range.2Excludes participants earning less than $40,000 a year because another IRC limit prevented them from reaching the §402(g) limit. Tabulated from a sample of 0.8 million participants.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (October 2001))
10
401(k) Participants Contributing at 401(k) Participants Contributing at Employer Contribution Match Level by Employer Contribution Match Level by
SalarySalary1,21,2
401(k) Participants Contributing at 401(k) Participants Contributing at Employer Contribution Match Level by Employer Contribution Match Level by
SalarySalary1,21,2
16%
15%
17%
16%16%
15%
$20,000 to$40,000
>$40,000 to$60,000
>$60,000 to$80,000
>$80,000 to$100,000
>$100,000 All
Salary Range
Non-Highly Compensated Employees Highly Compensated Employees
1Percent of participants in salary range. Contributions in 19992Sample of nearly 1 million participants (whether contributing or not) for whom employer matching contribution information was provided or derived.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (October 2001))
11
401(k) Participants’ Asset 401(k) Participants’ Asset AllocationAllocation
401(k) Participants’ Asset 401(k) Participants’ Asset AllocationAllocation
• What influences 401(k) plan participants’ asset allocations?
• EBRI/ICI database analyses 401(k) participant asset allocation by age, tenure, salary, plan size, and investment option.
• 401(k) plans generally have lots of investment options.
EBRI/ICI Research* finds:Participants are offered 10.4 options, on average, But, 2.5 options are chosen, on average.Participants are not “naïve” – less than 1% had followed 1/n.The more equity options, the higher the allocation to equity
funds.
Age Recent Mkt. Returns Income Family Plan Materials/Design Other? Education Number of Investments
*See Holden & VanDerhei (May 2001).
12
401(k) Participants Now More 401(k) Participants Now More Likely to Choose Balanced FundsLikely to Choose Balanced Funds1,21,2
401(k) Participants Now More 401(k) Participants Now More Likely to Choose Balanced FundsLikely to Choose Balanced Funds1,21,2
7.416.0
66.9 49.2
10.5
8.4
12.824.2
1998 2004
Participants in their 20s
Fixed-IncomeInvestments
Company Stock
Equity Funds
Balanced Funds
1401(k) plan average asset allocation among participants with two or fewer years of tenure, percent of total. Minor investment options are not shown; therefore, column percentages do not add to 100 percent.2Drawn from samples of 1.2 million participants with two or fewer years of tenure in 1998 and 1.8 million participants with two or fewer years of tenure in 2004.3Fixed-Income investments include bond funds, guaranteed investment contracts (GICs) and other stable value funds, and money funds. 4“Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security indicated.5Balanced funds include lifestyle and lifecycle funds.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005))
3
4
4,5
13
401(k) Loan and Withdrawal 401(k) Loan and Withdrawal ActivityActivity
401(k) Loan and Withdrawal 401(k) Loan and Withdrawal ActivityActivity
• Loans Loans widely available Loan option increases employee participation and
contributions Loans rarely taken
• Withdrawals Safe harbor Generally subject to taxes and penalty Withdrawals very rarely taken
Sources: Utkus (July 2005), Holden & VanDerhei (November 2002—Appendix), Holden & VanDerhei (October 2001), ICI (Spring 2000), U.S. Government Accountability Office (October 1997)
14
Loans Are Widely Available…But Loans Are Widely Available…But Rarely Taken from 401(k) PlansRarely Taken from 401(k) Plans
Loans Are Widely Available…But Loans Are Widely Available…But Rarely Taken from 401(k) PlansRarely Taken from 401(k) Plans
•Among 401(k)
participants with loans,
the level of the unpaid
balance represented 13
percent of the account
balance (net of the
unpaid loan balance) at
year-end 2004.
Have Taken Out
a Loan
Participants in Plans Offering
Loans
Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005))
19%
15
Few 401(k) Participants Take Few 401(k) Participants Take Hardship WithdrawalsHardship Withdrawals**
Few 401(k) Participants Take Few 401(k) Participants Take Hardship WithdrawalsHardship Withdrawals**
Have Not Taken a Hardship
Withdrawal96%
Have Taken a Hardship
Withdrawal4%
*Percent of 401(k) participants whose plans allow hardship withdrawals.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000 (see also Holden & VanDerhei (November 2002—Appendix))
16
Basic Elements of the EBRI/ICI 401(k) Basic Elements of the EBRI/ICI 401(k) Accumulation Projection ModelAccumulation Projection Model
Basic Elements of the EBRI/ICI 401(k) Basic Elements of the EBRI/ICI 401(k) Accumulation Projection ModelAccumulation Projection Model
• Start at Year-End 2000
401(k) Account BalanceAsset AllocationLoan Balance Annual Income
Participant Activity Inside the 401(k)
Plan
Participant Behavior Over
Working Career
Source: EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (July 2005, November 2002, and November 2002—Appendix))
• Project for Each Participant: Account Balances and Income Until Age 65• At Age 65 – Calculate Median Replacement Rate
17
Basic Model Elements: Participant Basic Model Elements: Participant Activity Inside the 401(k) PlanActivity Inside the 401(k) Plan
Basic Model Elements: Participant Basic Model Elements: Participant Activity Inside the 401(k) PlanActivity Inside the 401(k) Plan
Contributions? Amount Contributed?
Loans? Amount Borrowed?
401(k) Withdrawal?Amount Withdrawn?
Asset AllocationRebalance Portfolio
Investment Returns
Source: EBRI/ICI 401(k) Accumulation Projection Model
18
Basic Model Elements: Participant Basic Model Elements: Participant Behavior Over Working CareerBehavior Over Working Career
Basic Model Elements: Participant Basic Model Elements: Participant Behavior Over Working CareerBehavior Over Working Career
Change Jobs?
Leave Balance, Cash Out, or Roll Over?
Rollover IRA?Asset Allocation,
Investment Returns, IRA Withdrawals?
Source: EBRI/ICI 401(k) Accumulation Projection Model
19
Median Replacement Rates for Median Replacement Rates for Participants Turning 65 Between 2030 and Participants Turning 65 Between 2030 and
2039 by Income Quartile at Age 652039 by Income Quartile at Age 6511
Median Replacement Rates for Median Replacement Rates for Participants Turning 65 Between 2030 and Participants Turning 65 Between 2030 and
2039 by Income Quartile at Age 652039 by Income Quartile at Age 6511
52 51
106
31
54
87
23
59
84
16
67
84
Social Security 401(k) Accumulation Social Security and 401(k)Accumulation
Lowest
Quartile 2
Quartile 3
Highest
1Percent of final five-year average salary.2The 401(k) accumulation includes 401(k) balances at employer(s) and rollover IRA balances.Source: Tabulations from the EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (July 2005))
2
2
20
Change in Median Replacement Rates from 401(k) Change in Median Replacement Rates from 401(k) Accumulations for Participants Reaching Age 65 Accumulations for Participants Reaching Age 65 Between 2030 and 2039, by Income Quartile at 65Between 2030 and 2039, by Income Quartile at 65
Change in Median Replacement Rates from 401(k) Change in Median Replacement Rates from 401(k) Accumulations for Participants Reaching Age 65 Accumulations for Participants Reaching Age 65 Between 2030 and 2039, by Income Quartile at 65Between 2030 and 2039, by Income Quartile at 65
Scenario Lowest Second Third Highest
Baseline2 50.7 54.0 59.5 67.2
Change3
Always contributing +9.1 +8.9 +6.5 +4.6
Loans never taken +0.4 +0.3 +0.4 +0.3
No 401(k) withdrawals +6.7 +6.0 +6.0 +3.8
Stochastic coverage -27.5 -30.8 -34.7 -39.4
No cashouts +13.3 +9.1 +6.8 +4.7
No IRA withdrawals +11.1 +12.8 +14.8 +18.4
1The 401(k) Accumulation includes 401(k) balances at employer(s) and rollover IRA balances.2Percent of final five-year average salary (median).3Percentage points.Source: EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (November 2002))
21
Median Replacement RatesMedian Replacement Rates11 from 401(k) from 401(k) AccumulationsAccumulations22 for Workers Turning 65 Between for Workers Turning 65 Between
2030 and 2039 by Income Quartile at Age 652030 and 2039 by Income Quartile at Age 6533
Median Replacement RatesMedian Replacement Rates11 from 401(k) from 401(k) AccumulationsAccumulations22 for Workers Turning 65 Between for Workers Turning 65 Between
2030 and 2039 by Income Quartile at Age 652030 and 2039 by Income Quartile at Age 6533
23
37
52
33
40
54
43 45
575652
63
All Eligible Workers (401(k) PlanParticipants and Eligible Non-
Participants)
Automatic Enrollment (3%Contribution Rate; Money Market
Fund)
Automatic Enrollment (6%Contribution Rate; Life-Cycle
Fund)
Lowest Quartile 2 Quartile 3 Highest
1In all three simulations presented in this figure, workers experience continuous employment, continuous 401(k) plan coverage, and investment returns based on average annual returns between 1926 and 2001. While in the baseline, only 401(k) participants with account balances at year-end 2000 are considered; here, all eligible workers are considered.2The 401(k) accumulation includes 401(k) balances at employer(s) and rollover IRA balances.3Percent of final five-year average salary.Source: EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (July 2005))
22
History of IRAsHistory of IRAsHistory of IRAsHistory of IRAs
• Facilitate a Commitment to Saving Tax incentives Behavioral finance
• Simplicity—Universal IRA
• Flexibility—Rollovers and Contributions
23
The IRA Participation DecisionThe IRA Participation DecisionThe IRA Participation DecisionThe IRA Participation Decision
• IRAs—Very Low Participation Rates Sailer and Holden (August 2004) Contribution Activity Varies with Age, Income
• IRA Contributions at “Corner” Points Internal Revenue Code Limit EGTRRA Catch-Up Contributions
24
Deductible Contributions to Traditional Deductible Contributions to Traditional IRAs,* 1981IRAs,* 1981–1–1987 and 2002 987 and 2002
(billions of dollars)
Deductible Contributions to Traditional Deductible Contributions to Traditional IRAs,* 1981IRAs,* 1981–1–1987 and 2002 987 and 2002
(billions of dollars)
$4.8
$28.3
$32.1
$35.4$38.2 $37.8
$14.1
$9.5
1981 1982 1983 1984 1985 1986 1987 2002
*Deductible IRA contributions reported on individual income tax returns (Form 1040).Sources: IRS, Statistics of Income Division, Individual Income Tax Returns, Publication 1304, various years and SOI Bulletin, various issues (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))
25
Percent of All Taxpayers by Percent of All Taxpayers by Eligibility for IRA DeductionsEligibility for IRA DeductionsPercent of All Taxpayers by Percent of All Taxpayers by
Eligibility for IRA DeductionsEligibility for IRA Deductions
Full Roth Contribution Instead 2%
Eligible, Taking Traditional IRA Deduction 2%Eligible, Not Taking Deduction
65%
No Taxable Compensation 12%
Covered* and Above Income Limit 17%Older than 70 ½
2%*Covered by a qualified employer-sponsored plan.Source: Matched File of Income Tax Returns, Forms 5498, and 1099-R for Tax-Year 2001 (see Sailer & Holden (August 2004))
26
IRA IRA Contribution DecisionContribution Decision
IRA IRA Contribution DecisionContribution Decision
36%
30%33%
41%
• IRA Contributions at “Corner” Points Among those making contributions to IRAs, more
than half contributed at the limit (through 2001).
• EGTRRA Catch-Up Contributions Percentage of Contributing IRA Owners Age 50 or
Older
Source: ICI Annual Owners Survey (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))
20022002 20022003 2003
Traditional IRA Roth IRA
27
Traditional IRAsTraditional IRAs(billions of dollars)
Traditional IRAsTraditional IRAs(billions of dollars)
p e
p=preliminarye=estimateSources: Investment Company Institute, U.S. Internal Revenue Service Statistics of Income Division and SOI Bulletin, various issues (see ICI (August 2005—Appendix))
10 10 12
200226
204
2,423 2,407 2,322
3,150
$0
$100
$200
$300
$400
$500
$600
1999 2000 2002 2004
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
Market Value of AssetsRolloversContributions
28
IRA Owners’ Asset AllocationsIRA Owners’ Asset AllocationsIRA Owners’ Asset AllocationsIRA Owners’ Asset Allocations
• IRA asset allocation varies with age.
• In 2004, 46 percent of households with traditional IRAs had rollovers in their IRAs (ICI (February 2005)).
• IRA owners hold a variety of assets (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005)).
• Households with IRAs and 401(k) accounts are heavily invested in equities in both (see Copeland (January 2004)).
29
1%3%5%Other
100%100%100%
16%15%6%Mixed
31%28%15%CDs/Money Market Funds
20%11%4%Bonds
32%43%70%Stocks/Mutual Funds
70+60s20s
How Is Your IRA or Keogh Account Invested?
IRA Asset Allocation by Age of IRA Asset Allocation by Age of HouseholdHousehold
(percent of U.S. households)
Source: ICI tabulations of the Federal Reserve Board’s 2001 Survey of Consumer Finances
30
IRA Withdrawal ActivityIRA Withdrawal ActivityIRA Withdrawal ActivityIRA Withdrawal Activity
• IRAs Loans are not allowed Withdrawals permitted; often with penalty Withdrawals rarely taken
31
Few Households with IRAs Take Few Households with IRAs Take WithdrawalsWithdrawals**
Few Households with IRAs Take Few Households with IRAs Take WithdrawalsWithdrawals**
*Percent of households with traditional IRAs. Withdrawal activity in any given year on average between 1999 and 2003.Source: ICI Annual IRA Owners Surveys (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))
Made a Partial Withdrawal
13%
Made No Withdrawal
84% Withdrew All Money
3%
32
Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When Under Age 59Under Age 591,21,2
Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When Under Age 59Under Age 591,21,2
23%
20%
10%
9%
10%
10%
9%
10%
Other reason
Make a large purchase
Take a required minimum distribution
Buy a home
Pay for education
Reinvest outside IRAs
Pay for health care
Pay living expenses
1Percent of households taking traditional IRA withdrawals. Results pooled over 2000 through 2004 survey years covering withdrawal activity in 1999 to 2003.2Multiple responses.Source: ICI Annual IRA Owners Survey (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))
33
Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When 70 or Older70 or Older1,21,2
Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When 70 or Older70 or Older1,21,2
5%
7%
5%
1%
2%
12%
72%
8%
Other reason
Buy a home
Pay for education
Make a large purchase
Reinvest outside IRAs
Pay living expenses
Pay for health care
Take a required minimum distribution
1Percent of households taking traditional IRA withdrawals.2 Multiple responses. Source: ICI Annual IRA Owners Survey (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))
34
AppendixAppendixAppendixAppendix
• Total Retirement Market• Participation Decision• 401(k) Asset Allocation• 401(k) Loans and Withdrawals• Job Change and Retirement
35
Total Retirement MarketTotal Retirement MarketTotal Retirement MarketTotal Retirement Market
Year-End 2004 Assets1 (billions of dollars)
IRAs 3,475Defined contribution plans2 3,228Private defined benefit plans 1,846State and local government plans 2,585Federal defined benefit plans3 1,024Annuities4 1,246
Total Retirement Market 13,404
1Components do not add to total because of rounding.2Includes private employer-sponsored defined contribution plans, 403(b) plans, and 457 plans.3Includes U.S. Treasury security holdings of the civil service retirement and disability fund, the military retirement fund, the judicial retirement funds, the Railroad Retirement Board, and the foreign service retirement and disability fund. Also includes securities held in the National Railroad Retirement Investment Trust and the Federal Employees Retirement System (FERS) Thrift Savings Plan (TSP). 4All fixed and variable annuity reserves at life insurance companies less annuities held by IRAs, 457 plans, 403(b) plans, and private pension funds. Sources: Investment Company Institute, Federal Reserve Board, National Association of Government Defined Contribution Administrators, American Council of Life Insurers, and Internal Revenue Service (see ICI (August 2005) and Flow of Funds Accounts, Z.1 Release (September 21, 2005))
36
Employer Changes that Could Employer Changes that Could Improve 401(k) Plan ParticipationImprove 401(k) Plan Participation1,21,2
Employer Changes that Could Employer Changes that Could Improve 401(k) Plan ParticipationImprove 401(k) Plan Participation1,21,2
55%
55%
55%
58%
71%
80%Provide or increase company match
Give respondent a raise
Increase the number of plan investmentoptions
Provide one-on-one investment advice andcounseling
Provide more information about the 401(k)plan and its features
Provide general information on investing
1Percent of 401(k) plan nonparticipants “very” or “somewhat” likely to enroll if each change is made.2Multiple responses included. Number of respondents varies.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity , Spring 2000
37
Most Common Types of EducationMost Common Types of Education11 Provided by Plan SponsorsProvided by Plan Sponsors22
Most Common Types of EducationMost Common Types of Education11 Provided by Plan SponsorsProvided by Plan Sponsors22
23%
24%
38%
39%
44%
54%
65%
Paycheck stuffers
Workshops
Seminars
Internet
Newsletters
Fund performance sheets
Enrollment kits
1Communication techniques used to accomplish primary education goal. Multiple responses included. For other types of education mentioned, see the report.2Percent of plans.Source: Profit Sharing/401(k) Council of America (PSCA), 48th Annual Survey of Profit Sharing and 401(k) Plans, Reflecting 2004 Plan Experience, 2005
38
Average Asset Allocation in 2004, by Average Asset Allocation in 2004, by Participant AgeParticipant Age11
Average Asset Allocation in 2004, by Average Asset Allocation in 2004, by Participant AgeParticipant Age11
5237
13
13
13
10
6
21
17 20
Participants in Their 20s Participants in Their 60s
Bond & Money &Other Funds
GICs & Other StableValue Funds
Balanced Funds
Company Stock
Equity Funds
73%
55%
1Percent of total assets. Components may not add to 100 percent because of rounding.2“Funds” include mutual funds, life insurance separate accounts, bank collective trusts, and any pool of assets primarily invested in the investment objective indicated.Source: Tabulations from the EBRI/ICI Participant-Directed Plan Data Collection Project (see Holden & VanDerhei (September 2005))
2
2
2
2
39
Percent of Assets Allocated to Equity Percent of Assets Allocated to Equity Funds Varies Widely Among 401(k) Funds Varies Widely Among 401(k)
ParticipantsParticipants1,21,2
Percent of Assets Allocated to Equity Percent of Assets Allocated to Equity Funds Varies Widely Among 401(k) Funds Varies Widely Among 401(k)
ParticipantsParticipants1,21,2
21%
32%
8%
11%
15%
14% >80 Percent
Zero
1 to 20 Percent
>20 to 40 Percent
>40 to 60 Percent
>60 to 80 Percent
1Asset allocation distribution of 401(k) participant account balance to equity funds, percent of participants, 2004.2Includes the 16.3 million participants in the year-end 2004 EBRI/ICI database. Components do not add to 100 percent because of rounding.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005))
40
Distribution of 401(k) Plans by Number Distribution of 401(k) Plans by Number of Investment Options Offeredof Investment Options Offered1,21,2
Distribution of 401(k) Plans by Number Distribution of 401(k) Plans by Number of Investment Options Offeredof Investment Options Offered1,21,2
5%
6%
9%
11%
14%
10%
45%
2 to 5 Options
11 or More Options
6 Options
7 Options8 Options
9 Options
10 Options
1Percent of plans.2Sample of about 23,500 plans with 1.4 million participants drawn from the year-end 2000 EBRI/ICI database. Median number of options offered is 10; average is 10.4. Median number of options chosen is 2; average is 2.5.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (May 2001))
41
Distribution of Participants by Number of Distribution of Participants by Number of Investment Options Offered and ChosenInvestment Options Offered and Chosen1,21,2
Distribution of Participants by Number of Distribution of Participants by Number of Investment Options Offered and ChosenInvestment Options Offered and Chosen1,21,2
1Percent of participants in row. Row percentages may not add to 100 percent because of rounding.2Sample of about 23,500 plans with 1.4 million participants drawn from the year-end 2000 EBRI/ICI database. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (May 2001))
1 2 3 4 5 or more
2 to 4 64 27 7 2 -
5 33 34 21 10 2
6 26 35 24 13 2
7 24 29 26 14 8
8 to 10 21 32 25 15 7
11 or more 22 31 23 14 9
Total 23 31 24 14 8
Number Chosen by 401(k) Participant
Nu
mb
er
Off
ered
42
Reasons for Taking Most Recent Reasons for Taking Most Recent 401(k) Plan Loan401(k) Plan Loan1,21,2
Reasons for Taking Most Recent Reasons for Taking Most Recent 401(k) Plan Loan401(k) Plan Loan1,21,2
34%
4%
6%
16%
23%
28%
Something else
Pay for anemergency expense
Pay educationexpenses
Make a downpayment on a home
Buy a car or otherexpensive item
Pay everydayexpenses or bills
1Percent of 401(k) plan participants who have taken a loan from current plan.2Multiple respondents included.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000
43
Reasons for 401(k) Hardship Reasons for 401(k) Hardship WithdrawalsWithdrawals1,21,2
Reasons for 401(k) Hardship Reasons for 401(k) Hardship WithdrawalsWithdrawals1,21,2
1Percent of 401(k) plan participants who have taken a hardship withdrawal from current plan.2Multiple responses.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity , Spring 2000
7%
21%
28%
45%
Pay educationalexpenses
Pay bills or dailyexpenses
Pay for a medicalemergency
Pay for a home
44
Households’ Asset Allocation Households’ Asset Allocation Among Households with Both IRAs Among Households with Both IRAs
and 401(k)-Type Plansand 401(k)-Type Plans1,21,2
Households’ Asset Allocation Households’ Asset Allocation Among Households with Both IRAs Among Households with Both IRAs
and 401(k)-Type Plansand 401(k)-Type Plans1,21,2
Asset Class IRAs 401(k)-Type Plans
Mostly Stock 65.0% 61.1%Mostly Interest-Earning 20.8% 7.5%Split 13.5% 31.4%Other 0.7%
1Percentage of assets in account type indicated.2Some of the differences in asset type between the two account types is due to the differing format of the question asked across the two account types.Source: EBRI Tabulations of the 2001 Survey of Consumer Finances (see Copeland (January 2004))
45
Changing Jobs—Tenure Distribution Changing Jobs—Tenure Distribution of Workers Age 55 to 64* of Workers Age 55 to 64*
Changing Jobs—Tenure Distribution Changing Jobs—Tenure Distribution of Workers Age 55 to 64* of Workers Age 55 to 64*
18%
13%
19%
25%26%
2 or Fewer 3 to 4 5 to 9 10 to 19 20 or More
Years of Tenure with Current Employer
*Percent of workers; percentages do not add to 100 percent because of rounding.Source: U.S. Department of Labor, Bureau of Labor Statistics, Employee Tenure in 2004, September 21, 2004
46
Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**
Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**
39%
51%
61%
Less than $40,000 $40,000 to $49,999 $50,000 or More
Current Annual Income
*Percent of workers receiving lump-sum distributions.Source: ICI Tabulations of Survey of Income and Program Participation (SIPP) 2001 Panel, Pension Module; Data for 2003
47
Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**
Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**
22%
37%
44%
54%
61%
79%85%
$999 orless
$1,000 to$4,999
$5,000 to$9,999
$10,000 to$19,999
$20,000 to$49,999
$50,000 to$99,999
$100,000 ormore
*Percent of workers receiving lump-sum distributions.Source: ICI Tabulations of Survey of Income and Program Participation (SIPP) 2001 Panel, Pension Module; Data for 2003
Size of Lump-Sum Distribution
48
Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**
Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**
32%
44%
55%59%
77%
20s 30s 40s 50s 61 to 64
Age at Time of Distribution
*Percent of workers receiving lump-sum distributions.Source: ICI Tabulations of Survey of Income and Program Participation (SIPP) 2001 Panel, Pension Module; Data for 2003
49
Defined Contribution Plan Defined Contribution Plan Distribution Decision at Distribution Decision at
RetirementRetirement11
Defined Contribution Plan Defined Contribution Plan Distribution Decision at Distribution Decision at
RetirementRetirement11
47%
26%23%
10%
Lump-SumDistribution
Deferral ofDistribution
Annuity InstallmentPayments
Distribution Options Selected at Retirement by Retirees Having More than One Option2
1Individuals retired from a defined contribution plan between 1995 and 2000. Multiple responses included. Data as of May 2000.2Percent of respondents who had multiple options.Source: Investment Company Institute, “Financial Decisions at Retirement,” ICI Fundamentals, November 2000
50
BibliographyBibliographyBibliographyBibliography
Choi, James J., David Laibson, Brigitte C. Madrian, and Andrew Metrick. “Saving for Retirement on the Path of Least Resistance,” Originally prepared for Tax policy and the Economy 2001, updated draft July 19, 2004.
Copeland, Craig. “Retirement Plan Participation and Asset Allocation,” EBRI Notes, Vol. 25, No. 1, Washington, DC: Employee Benefit Research Institute, January 2004: pp. 1-11.
Federal Reserve Board. Survey of Consumer Finances, available at: <http://www.federalreserve.gov/pubs/oss/oss2/scfindex.html>.
Federal Reserve Board. Flow of Funds Accounts of the United States, Z.1 Release. Washington, DC: Federal Reserve Board, September 21, 2005.
Fidelity Investments. Building Futures, Volume V: How Workplace Savings Are Shaping the Future of Retirement (A Report on Corporate Defined Contribution Plans). Boston, MA: Fidelity Investments, 2004.
Holden, Sarah, and Jack VanDerhei. “401(k) Plan Asset Allocation, Account Balances, and Loan Activity in 2004,” ICI Perspective, Vol. 11, No. 4, and EBRI Issue Brief, No. 285, Washington, DC: Investment Company Institute and Employee Benefit Research Institute, September 2005.
Holden, Sarah, and Jack VanDerhei. “Appendix: Additional Figures for the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project for Year-End 2004,” ICI Perspective, Vol. 11, No. 4A, Washington, DC: Investment Company Institute, September 2005-Appendix.
51
BibliographyBibliographyBibliographyBibliography
Holden, Sarah, and Jack VanDerhei. “The Influence of Automatic Enrollment, Catch-Up, and IRA Contributions on 401(k) Accumulations at Retirement,” ICI Perspective, Vol. 11, No. 2, and EBRI Issue Brief, No. 283, Washington, DC: Investment Company Institute and Employee Benefit Research Institute, July 2005.
Holden, Sarah, Kathy Ireland, Vicky Leonard-Chambers, and Michael Bogdan. “The Individual Retirement Account at Age 30: A Retrospective,” ICI Perspective, Vol. 11, No. 1. Washington DC: Investment Company Institute, February 2005.
Holden, Sarah, and Jack VanDerhei. “Can 401(k) Accumulations Generate Significant Income for Future Retirees?” ICI Perspective, Vol. 8, No. 3, and EBRI Issue Brief, No. 251, Washington, DC: Investment Company Institute and Employee Benefit Research Institute, November 2002.
Holden, Sarah, and Jack VanDerhei. “Appendix: EBRI/ICI 401(k) Accumulation Projection Model,” ICI Perspective, Vol. 8, No. 3A, Washington, DC: Investment Company Institute, November 2002-Appendix.
Holden, Sarah, and Jack VanDerhei. “Contribution Behavior of 401(k) Plan Participants,” ICI Perspective, Vol. 7, No. 4, and EBRI Issue Brief, No. 238, Washington, DC: Investment Company Institute and Employee Benefit Research Institute, October 2001.
52
BibliographyBibliographyBibliographyBibliography
Holden, Sarah, and Jack VanDerhei. “The Impact of Employer-Selected Investment Options on 401(k) Plan Participants’ Asset Allocations: Preliminary Findings,” Working Paper prepared for The Center for Pension and Retirement Research (CPRR) Current Pension Policy Issues Conference, at Miami University, Oxford, OH, June 8-9, 2001: Draft, May 2001.
Investment Company Institute. “Mutual Funds and the U.S. Retirement Market in 2004,” ICI Fundamentals, Vol. 14, No. 4, Washington, DC: Investment Company Institute, August 2005.
Investment Company Institute. “Appendix: Additional Data on Mutual Funds and the U.S. Retirement Market in 2004,” ICI Fundamentals, Vol. 14, No. 4A, Washington, DC: Investment Company Institute, August 2005-Appendix.
Investment Company Institute. “IRA Ownership in 2004,” ICI Fundamentals, Vol. 14, No. 1, Washington, DC: Investment Company Institute, February 2005.
Investment Company Institute. “Financial Decisions at Retirement,” ICI Fundamentals, Vol. 9, No. 6, Washington, DC: Investment Company Institute, November 2000.
Investment Company Institute. “Defined Contribution Plan Distribution Choices at Retirement: A Survey of Employees Retiring Between 1995 and 2000,” ICI Research Series, Washington, DC: Investment Company Institute, Fall 2000.
53
BibliographyBibliographyBibliographyBibliography
Investment Company Institute. “401(k) Plan Participants: Characteristics, Contributions, and Account Activity,” ICI Research Series, Washington, DC: Investment Company Institute, Spring 2000.
Profit Sharing/401(k) Council of America (PSCA). 48th Annual Survey of Profit Sharing and 401(k) Plans: Reflecting 2004 Plan Experience. Chicago, IL: Profit Sharing/401(k) Council of America, 2005.
Sailer, Peter, and Sarah Holden. “Use of Individual Retirement Arrangements to Save for Retirement-Results From a Matched file of Tax Returns and Information Documents for Tax Year 2001,” Presented at the 2004 American Statistical Association Meetings, Washington, DC: Internal Revenue Service Statistics of Income Division, August 2004 (available at: <http://www.irs.gov/pub/irs-soi/04saiasa.pdf>).
U.S. Census Bureau. Survey of Income and Program Participation, available at: <http://www.sipp.census.gov/sipp/>.
U.S. Department of Labor, Bureau of Labor Statistics, Employee Tenure in 2004. September 21, 2004.
U.S. Government Accountability Office (GAO; formerly General Accounting Office). “401(k) Pension Plans: Loan Provisions Enhance Participation But May Affect Income Security for Some,” Letter Report, 10/01/97, GAO-HEHS-98-5, Washington, DC: U.S. Government Accountability Office, October 1997.
54
BibliographyBibliographyBibliographyBibliography
Utkus, Stephen P. “The question of loans,” Presented at 2005 US-UK Dialogue on Pensions, July 19-21, 2005, in Washington, DC: July 21, 2005.
Utkus, Stephen P., and Gary R. Mottola. Catch-Up Contributions in 2004: Plan Sponsor and Participant Adoption. Valley Forge, PA: The Vanguard Center for Retirement Research and The Vanguard Group, April 2005.
Top Related