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Retirement Assets Top $29 Trillion, While Plan Fees Continue Downward Trend

Industry Trends and Research

Since the end of last year, total U.S. retirement assets were up 7.4%, reaching $29.1 trillion at the end of the first quarter for 2019, according to new data by the Investment Company Institute.

Retirement assets accounted for 33% of all household financial assets in the U.S. at the end of March 2019, with defined contribution (DC) plan assets reaching $8.2 trillion at the end of the first quarter — up 8.2% from year-end 2018. Of these DC plan assets, $5.7 trillion was held in 401(k) plans.

In addition to 401(k) plans, $535 billion was held in other private-sector DC plans, $1 trillion in 403(b) plans, $333 billion in 457 plans and $606 billion in the federal employees’ Thrift Savings Plan.

Mutual funds managed $3.7 trillion – or 65% – of assets held in 401(k) plans at the end of the first quarter. With $2.2 trillion, equity funds were the most common type of funds held in 401(k) plans, followed by $1 trillion in hybrid funds, which include target date funds, ICI’s data further shows.

Not surprisingly, retirement accounts held the bulk (87%) of target date mutual fund assets, with 68% held through DC plans and 19% held through IRAs.

Assets in IRAs totaled $9.4 trillion at the end of the first quarter, an increase of 8.3% from year-end 2018, while private-sector DB plans held $3.2 trillion in assets.

Plan Design and Fees

Meanwhile, a separate study by BrightScope and ICI shows that in 2016 the average large 401(k) plan offered 27 investment options, including a mix of equity funds, bond funds and TDFs. The 84-page study also found that employers often use simple matching formulas to encourage employee contributions and that plan fees continue to decline over time. 

Notably, the annual update to the BrightScope/ICI study finds that 401(k) plan fees continue to trend downward. BrightScope’s total plan cost measure – including all fees on the audited Form 5500 reports, as well as fees paid through investment expense ratios – was 0.96% of assets in 2016, down from 1.02% in 2009.

Not surprisingly, mutual fund expense ratios in 401(k) plans tended to be lower in larger plans and mirror the overall downward trend for plan fees, according to the study. For example, it notes that, among consistently large 401(k) plans, the average domestic equity expense ratio fell from 0.65% in 2009 to 0.45% in 2016.

Larger 401(k) plans are also more likely to automatically enroll workers into the plan. More than half of large 401(k) plans with more than $250 million in plan assets reported that they automatically enrolled their participants, and nearly 6 in 10 plans with more than $1 billion in plan assets did, compared with fewer than 20% of plans with $10 million or less in plan assets, the study shows.

Contributions and Matches

In addition, most 401(k) plans offer employer contributions. In 2016, 85% of large 401(k) plans covering more than 9 out of 10 401(k) participants had employer contributions. Nearly all of the largest plans – about 95% of 401(k) plans with 5,000 participants or more – had employer contributions. Even among smaller 401(k) plans, employer contributions are common – with nearly three-quarters of 401(k) plans in the sample with fewer than 100 participants having them in 2016.

Among the 54% of large 401(k) plans with employer contributions with simple match formulas, the most common formula was matching 50% of contributions up to 6% of employee salary, with 18.8% of large 401(k) plans using this formula.

The next most common simple match formula – used by 13.2% of large 401(k) plans with simple matches – was a 100% match of contributions up to 4% of employee salary, the report notes. Altogether, it shows that the most common match rates for employer contributions – with various limits on the maximum employee contribution matched – were 50% (used by 40.6% of large 401(k) plans with simple matches) and 100% (used by 34.2% of large 401(k) plans with simple matches).

BrightScope and ICI update their study annually, using data from the Form 5500 filed by each of the approximately 560,000 401(k) plans. The study also incorporates data from the BrightScope Defined Contribution Plan Database, which includes information from more than 50,000 large 401(k) plans that filed detailed audited reports with the Department of Labor.