Investing January 10, 2007

Traditional IRA Growth Relies on Plan Rollovers

January 10, 2007 (PLANSPONSOR.com) - The engine of growth for traditional IRAs is being powered by qualified plan rollovers and not new contributions, according to a new data analysis.
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A new report from the Washington, DC-based Employee Benefits Research Institute (EBRI) said there was $204.4 billion in 2002 rollovers to traditional IRAs. That follows rollover amounts of $187.8 billion in 2001 and $225.6 billion in 2000. New contributions to IRAs, at the $40 billion-plus level, “pale in comparison,” the group said.

According to the analysis, the annual percentage increases in IRA assets for 2003 to 2005 of 18.1%, 11.5%, and 9.9%, respectively, are comparable with the growth rates in the 1990s. Not only that, but 2005 was only the second year since 1981 when a less-than-double-digit percentage increase occurred, with the exception of the three years of declines from 2000 to 2002, according to EBRI.

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The IRA asset expansion was mostly centered in mutual funds and self-directed brokerage accounts. EBRI reported that mutual fund assets increased from $1.052 trillion in 2002 to $1.668 trillion in 2005 while assets in self-directed brokerage accounts were up from $949 billion to $1.389 trillion over the same period

Aggregate IRA assets are larger than those accumulated in either private-sector defined benefit plans or defined contribution plans. In 2005, when IRAs held $3.67 trillion dollars, DB plans held $2.15 trillion and DC plans held $2.97 trillion.

Of the $2.5 trillion in IRAs in 2002, $2.3 trillion was in traditional IRAs, the EBRI data showed. This represents more than 90% of the IRA assets. Roth IRAs amounted to $77.6 billion, and all other IRAs held $133.4 billion in 2002.   Roth accounts represent just over 3% of all IRA assets, while other IRAs account for slightly more than 5%.

Furthermore, most of the IRAs assets are in traditional IRAs, but the largest share of contributions is going to Roth IRAs and other IRAs. Finally, despite the continued growth in IRA assets and much discussion of the importance of saving for retirement, only 10% of taxpayers eligible to contribute to an IRA actually do so, according to the analysis.

The EBRI IRA asset report is  here .

Benefits January 9, 2007

Health Plans Pose Greatest Multi-Employer Plan Admin Cost

January 9, 2006 (PLANSPONSOR.com) - Health plans had the highest expense-to-asset ratio of all benefit program types, according to a recent survey on the fund office administration for 230 multi-employer plans.
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According to a press release on the Segal Company survey, the health plan expenses were equal to 15% of plan assets. Segal said that corresponded to the generally increased technology, staffing and processing volumes and regulations surrounding the administration of health plans compared to other types of plans.

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Segal also said that m ore than one-third (37%) of heath funds receive 75% – 100% of medical and hospital claims in an electronic form; however, a nearly equal amount (36%) do not receive claims in that format, despite the recent requirements of the Health Insurance Portability and Accountability Act (HIPAA).

Half of the plans spend $25,000 or less on software and information technology support. The largest group (22%) spent between $10,001- $25,000 and only 5% spent more than $500,000.

The survey found that t he staffs of fund offices averaged about 338 participants each and that:

  • 13% of claims processors work on more than 150 claims per day.
  • 12% process between 101-150 claims daily; and
  • 19% process between 76-100 claims per day.

Twenty-seven percent of fund offices typically receive more than 2,000 calls from participants each month; 11% receive between 1,001-2000 calls; 15% received between 501-1,000 calls; and 14% received between 251-500 calls each month.

As far as claim turnaround, nearly 40% said it takes five business days or less and only 13% said it takes more than 15 days.

In addition, more than half (58%) of the respondents with annuity/401(k) plans reported allowing participants to self-direct the investment of their accounts and more than 60% of plans do not allow loans of any kind.

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