Nearly Half 401(k) Assets in Mutual Funds

Mutual fund assets held in employer-sponsored retirement accounts totaled $1.2 trillion in 2001.  While that is a decrease of 4% from a year earlier, mutual funds accounted for approximately 14% of the overall $8.5 trillion employer-sponsored pension market at year-end 2001, compared to just 2% in 1990, according to ICI.

According to the 2002 Mutual Fund Factbook, the picture is even more striking among 401(k) accouts, where nearly 44% of the total assets are invested in mutual funds.

Split “Up”

Based on preliminary data, the $2.36 trillion invested by retirement programs in mutual funds was split nearly evenly between individual retirement accounts (IRAs) and employer-sponsored accounts, including 401(k), 403(b)s, 457 plans and pension programs. The former containing $1.17 trillion at year end 2001, while employer-sponsored programs contained $1.19 trillion.  In fact, the $2.36 trillion invested by retirement programs represents about a third of all mutual fund investments, according to ICI.

Among employer-sponsored programs, the asset breakdown was:

• $765 billion in 401(k) accounts,
• $231 billion in 403 (b) accounts, and
• $193 billion in other retirement plans

That compared with just $46 billion for 401(k), $68 billion for 403(b) and $33 billion in other retirement plans in 1991.

Pension Palette

The IC report noted that the employer-sponsored pension market comprises:

• $1.9 trillion in assets in private defined benefit pension funds,
• $2.5 trillion in private defined contribution and pension funds (and 457 plans),
• $2.2 trillion in state and local government employee retirement funds,
• $1.2 trillion in annuity reserves, and
• $0.8 trillion in federal government defined benefit plans

Including assets in individual retirement accounts (IRAs), mutual funds accounted for $2.4 trillion, or 22% of the $10.9 trillion US retirement market. 

Over the past decade IRAs have increasingly moved toward mutual fund investments.  At the close of 2001 mutual funds made up 49% of all IRA assets, up dramatically from just 14% in the mid-1980s.  Approximately 40% of American households owned an IRA as of May 2001 – with some 34.1 million owning traditional IRAs, 11.9 million households holding Roth IRAs, an estimated 5.2 million holding SEP IRAs or SAR-SEP IRAs, and 4.1 million holding SIMPLE IRAs.

Traditional IRA households held a median of $30,000 in their traditional IRAs in 2001, typically in two accounts, according to the report.  Almost 45% included assets rolled over from employer-sponsored plans, while nearly a third also had a Roth IRA. 

More than one in three Roth IRA households opened a Roth IRA as their first IRA account.  Nearly all, 90%, of those with a Roth IRA were still employed.

College Poll

The ICI report also noted that in the emerging education savings market, mutual funds accounted for an estimated 98% of the $8.5 billion Section 529 savings plan market at year-end 2001, as well as $2 billion in Coverdell Education Savings Accounts (formerly Education IRAs).