Retirement Funds

In 2009 nearly two-thirds of retirement assets (64.8 percent) were in an employer-sponsored retirement plan (including government and private plans). About one-quarter (26.4 percent) of such assets were in individual retirement accounts and 8.8 percent were in annuities. 

Retirement plans are generally administered by a bank, life insurance company, mutual fund, brokerage firm or pension fund manager. Because payouts are relatively predictable, pension funds invest primarily in long-term securities. They are among the largest investors in the stock market. Pension plan assets made up 15.6 percent of total financial services assets in 2009.

 

U.S. RETIREMENT ASSETS, BY TYPE, 2002-2011

($ trillions, end of year)

(1) Data for 2003, 2009, 2010 and 2011 are estimates.

Source: Investment Company Institute.

 

View Archived Graphs

 

 

ASSETS OF PRIVATE PENSION FUNDS BY TYPE OF ASSET, 2007-2011 (1)

($ billions, end of year)

  2007 2008 2009 2010 2011
Total financial assets $6,410.6 $4,552.7 $5,471.0 $6,100.1 $6,070.3
Checkable deposits and currency 11.8 12.3 16.4 20.9 22.0
Time and savings deposits 67.7 67.9 72.7 72.8 73.3
Money market fund shares 93.5 95.7 96.4 96.3 96.1
Security repurchase agreements (2) 25.8 33.1 36.2 36.1 31.9
Credit market instruments 860.8 951.4 1,063.0 1,122.4 1,161.2
     Open market paper 26.9 37.2 26.7 18.2 16.7
     Treasury securities 169.5 184.9 310.7 391.0 436.2
          Agency- and GSE (3)-backed securities 296.8 318.1 269.1 257.6 252.4
     Corporate and foreign bonds 357.4 400.1 442.9 440.1 440.9
     Mortgages 10.2 11.1 13.6 15.5 15.0
Corporate equities 2,673.3 1,599.7 1,835.7 2,081.1 2,004.6
Mutual fund shares 2,110.6 1,366.0 1,817.3 2,121.1 2,144.6
Miscellaneous assets 567.1 426.5 533.3 549.4 536.8
     Unallocated insurance contracts (4) 431.3 317.6 412.8 457.5 450.8
     Contributions receivable 47.2 47.9 50.5 49.2 49.4
     Other 88.6 61.0 70.0 42.8 36.6
Pension fund reserves (liabilities) (5) 6,444.8 4,588.0 5,507.4 6,136.6 6,106.9

(1) Private defined benefit plans and defined contribution plans (including 401(k) type plans).
(2) Short-term agreements to sell and repurchase government securities by a specified date at a set price.
(3) Government-sponsored enterprise.
(4) Assets of private pension plans held at life insurance companies (e.g., variable annuities).
(5) Equal to the value of tangible and financial assets. These liabilities are assets of the household sector.

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

View Archived Tables

 

 

ASSETS OF PRIVATE PENSION FUNDS, 1945-2011

($ billions, end of year)

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

View Archived Graphs

 

 

ASSETS OF STATE AND LOCAL GOVERNMENT EMPLOYEE RETIREMENT FUNDS BY TYPE OF ASSET, 2007-2011

($ billions, end of year)

  2007 2008 2009 2010 2011
Total financial assets $3,198.8 $2,324.5 $2,673.7 $2,931.5 $2,849.1
Checkable deposits and currency 17.9 17.8 17.7 17.3 18.4
Time and savings deposits 0.7 0.7 0.7 0.7 0.7
Money market fund shares 12.4 14.3 14.3 13.9 14.8
Security repurchase agreements (1) 21.7 23.5 23.5 22.8 24.3
Credit market instruments 820.3 833.5 824.7 816.5 834.8
     Open market paper 38.4 25.9 24.0 22.4 23.8
     U.S. government securities 472.7 483.9 481.4 470.8 479.2
         Treasury securities 141.6 146.4 174.5 185.6 188.9
          Agency- and GSE (2)-backed securities 331.1 337.5 306.9 285.2 290.3
     Municipal securities 2.4 1.4 1.5 1.6 1.5
     Corporate and foreign bonds 297.0 312.9 308.6 312.4 320.9
     Mortgages 9.7 9.4 9.3 9.4 9.3
Corporate equities 2,013.7 1,237.9 1,549.8 1,782.5 1,690.6
Mutual fund shares 296.4 181.1 226.7 260.8 247.3
Miscellaneous assets 15.7 15.7 16.2 17.0 18.1
Pension fund reserves (liabilities) (3) 3,297.9 2,414.7 2,759.8 3,024.0 2,967.9

(1) Short-term agreements to sell and repurchase government securities by a specified date at a set price.
(2) Government-sponsored enterprise.
(3) Equal to the value of tangible and financial assets. These liabilities are assets of the household sector.

Source: Board of Governors of the Federal Reserve System, June 7, 2012.

View Archived Tables

 

TYPES OF RETIREMENT PLANS

There are two basic types of pension funds: defined benefit and defined contribution plans. In a defined benefit plan, the income the employee receives in retirement is guaranteed, based on predetermined benefits formulas. Typically, benefits are based on a percentage of the participant’s “terminal earnings,” i.e., earnings at retirement. In a defined contribution plan, a type of savings plan in which taxes on earnings are deferred until funds are withdrawn, the amount of retirement income depends on the contributions made and the earnings generated by the securities purchased. The employer generally matches the employee contribution up to a certain level and the employee selects investments from among the options the employer’s plan offers. 401(k) plans fall into this category, as do 403(b) plans for nonprofit organizations.

Other types of retirement funds include profit sharing plans, in which employers contribute to accounts based on their profits, and Keogh plans for the self-employed and employees of small businesses. Some workers who do not fall into these categories may make limited contributions to an individual retirement account (IRA). IRAs allow individuals to save money without paying taxes until they withdraw it. With the Roth IRA, a plan created in 1998 for individuals earning below specified income levels, individuals pay taxes on the money before it is saved and withdraw funds without paying federal taxes. Beginning in 2010 people with traditional IRAs will be able to convert them to Roths. Roth 401(k)s were introduced in 2001 and made permanent by federal law in 2007.

 

PARTICIPATION IN DEFINED BENEFIT AND DEFINED CONTRIBUTION PENSION PLANS, 1990-2011 (1)

(Percent)

Percent of all workers participating 1990-1991 2000 2005 2008 2009 2010 2011
Defined benefit plans 35% 19% 21% 20% 20% 10% 10%
Defined contribution plans 34 36 42 43 43 45 43

(1) All private industry.

Source: U.S. Bureau of Labor Statistics.

View Archived Tables

 

 

RETIREMENT FUNDS ASSET MIX, 2013

Source: Board of Governors of the Federal Reserve System, June 5, 2014.

View Archived Graphs

  • In defined benefit plans, equities held the largest share by type of investment in 2013, with 40 percent, followed by credit market instruments, with 24 percent, and mutual funds, with 15 percent.
  • In defined contribution plans, mutual funds held the largest share, with 50 percent. Equities ranked second, with 26 percent, followed by other assets (such as guaranteed investment certificates) with 15 percent.

 

DISTRIBUTION OF PRIVATE PENSION FUND ASSETS, 1985-2012

    Percent of financial assets
Year Financial assets
($ billions)
Defined benefit Defined contribution
1985 $1,226.8 64.8% 35.2%
1990 1,629.1 55.2 44.8
1995 2,898.8 50.6 49.4
2000 4,467.5 44.3 55.7
2005 5,389.0 42.3 57.7
2006 5,791.6 41.3 58.7
2007 6,108.2 41.2 58.8
2008 4,568.1 41.5 58.5
2009 5,442.7 39.1 60.9
2010 6,143.1 38.9 61.1
2011 6,302.3 38.9 61.1
2012 6,636.0 38.4 61.6

Source: Board of Governors of the Federal Reserve, June 6, 2013.

View Archived Tables

 

 

INVESTMENT MIX OF PRIVATE DEFINED BENEFIT PLAN ASSETS, 2007-2011

($ billions)

Year Equity Bonds Mutual funds Cash items Other assets Total assets
2007 $1,424 $587 $339 $56 $191 $2,596
2008 777 648 228 68 132 1,853
2009 805 767 286 70 177 2,105
2010 810 851 324 78 199 2,261
2011 703 898 330 94 199 2,223

Source: Securities Industry and Financial Markets Association.

View Archived Tables

 

 

 

INVESTMENT MIX OF PRIVATE DEFINED CONTRIBUTION PLAN ASSETS, 2007-2011

($ billions)

Year Equity Bonds Mutual funds Cash items Other assets Total assets
2007 $1,250 $247 $1,772 $169 $376 $3,815
2008 823 266 1,138 178 294 2,699
2009 1,031 270 1,531 179 356 3,366
2010 1,202 306 1,803 175 350 3,836
2011 1,175 362 1,812 171 338 3,858

Source: Securities Industry and Financial Markets Association.

View Archived Tables

 

PENSION BENEFIT GUARANTY CORPORATION

The Pension Benefit Guaranty Corporation (PBGC), a federal corporation created by the Employee Retirement Income Security Act of 1974, protects the pensions of workers in private defined benefit plans. The PBGC operates two pension programs. The Single-Employer Program, set up by individual companies, covers nearly 34 million workers and retirees in about 28,000 pension plans. The Multiple-Employer program, usually set up by two or more unrelated employers from the same industry, protects 10 million workers and retirees in about 1,500 pension plans. In 2006 Congress passed the Pension Protection Act, landmark pension reform legislation enacted to close shortfalls in employers’ funding of defined benefit pension plans. The act gave employers seven years to fully fund their plans but gave some airlines in bankruptcy proceedings an extra 10 years to meet their obligations.

 

NUMBER OF PAYEES, PENSION BENEFITS GUARANTY CORPORATION PAYMENTS, SINGLE-EMPLOYER PROGRAM, 1980-2010

(000)

(1) Deferred status refers to individuals eligible for future payments.
(2) Payees are retired participants or their beneficiaries receiving payments.

Source: Pension Benefit Guaranty Corporation.

View Archived Graphs

  • The PBGC’s Single-Employer Program for pension plans reported a deficit of $21.1 billion in fiscal year 2009, $10.4 billion more than the previous year's $10.7 billion shortfall.
  • Overall single employer benefit payments rose to $4.5 billion in 2009 from $4.3 billion in 2008.
  • In 2009 the PBGC Single-Employer Program covered 144 newly terminated pension plans and made payments to over 700,000 people.

INDIVIDUAL RETIREMENT ACCOUNTS (IRAs)

An individual retirement arrangement, or IRA, is a personal savings plan that allows individuals to set aside money for retirement, while offering tax advantages. Traditional IRAs are defined as those first allowed under the Employee Retirement Income Security Act of 1974. Amounts in a traditional IRA, including earnings, generally are not taxed until distributed to the holder. Roth IRAs were created by the Taxpayer Relief Act of 1997. Unlike traditional IRAs, Roth IRAs do not allow holders to deduct contributions. However, qualified distributions are tax free. Other variations include Simplified Employee Pensions (SEP), which enable businesses to contribute to traditional IRAs set up for their workers, and Savings Incentive Match Plans for Employees (SIMPLE) plans, a similar arrangement for small businesses. According to the Investment Company Institute, 46.1 million households (or 39.3 percent of U.S. households) had IRAs in 2009. Of these, 36.6 million households ( 31.2 percent) had traditional IRAs, 17 million (14.5 percent) had Roth IRAs and 9.6 million (8.2 percent) had SEP or SIMPLE IRAs.

 

IRAs BY HOLDER, 2008-2012

($ billions, market value, end of year)

  2008 2009 2010 2011 2012
U.S.-chartered depository institutions (1) $326.0 $356.7 $383.3 $403.6 $428.0
Credit unions (2) 65.5 74.2 77.2 78.4 79.9
Life insurance companies (2) 381.6 405.5 436.0 446.0 460.0
Money market mutual funds 271.0 230.0 206.0 215.0 222.0
Mutual funds (3) 1,275.0 1,667.0 1,933.0 1,896.0 2,154.0
Other self-directed accounts 1,361.9 1,629.6 1,803.5 1,832.9 2,063.1
Total  $3,681.0 $4,363.0 $4,839.0 $4,872.0 $5,407.0

(1) Includes savings banks, commercial banks and Keogh accounts.
(2) Includes Keogh accounts.
(3) Excludes variable annuities.

Source: Board of Governors of the Federal Reserve System, June 6, 2013.

View Archived Tables

  • In 2009 most IRAs were held by mutual funds. The second largest share was held by "other self-directed accounts," generally brokerage accounts in which the investor has considerable control over the direction of investments.

 

IRA MARKET SHARES BY HOLDER, 2009 AND 2013

(Market value, end of year)

(1) Includes savings banks, commercial banks and Keogh accounts.
(2) Includes Keogh accounts.
(3) Excludes variable annuities.

Source: Board of Governors of the Federal Reserve System, June 5, 2014.

View Archived Graphs

 

401(K) PLAN PARTICIPANTS

Fifty-three percent of people who participate in 401(k) plans are in their thirties or forties, according to an analysis by the Employee Benefits Research Institute and the Investment Company Institute. The median age of participants in 2008 was 44 years, the same as in 2007. Thirty-eight percent of participants had five or fewer years of tenure in their firms, while 5 percent were at their firms for over 30 years. The median tenure at the current employer was seven years in 2008, up from six years in 2007.

 

401(k) PLAN PARTICIPANTS BY AGE, 2010

Source: Investment Company Institute.

View Archived Graphs

 

401(k) ASSETS

The National Bureau of Economic Research expects assets in 401(k) plans to grow dramatically in coming decades, even as aging baby boomers liquidate plan assets to fund their retirement. The plans, first introduced in the early 1980s, currently represent only a small portion of retirees’ wealth. However, in recent years the plans have become available to a majority of workers, with the percentage of families with members eligible to participate jumping from less than 20 percent in 1984 to more than 50 percent in 2003. By the time today's younger workers retire, they will have had more time to contribute to their plans than baby boomers, further fueling the growth of 401(k)s.

 

ASSETS IN 401(k) PLANS, 2000-2009

($ billions, end of year)

Year  Mutual fund 401(k) plan assets (1) Other 401(k) plan assets Total
2000 $837 $887 $1,725
2001 799 883 1,682
2002 736 837 1,573
2003 923 999 1,922
2004 1,119 1,069 2,189
2005 1,242 1,154 2,396
2006 1,511 1,257 2,768
2007 1,702 1,280 2,982
2008 1,166 (2) 1,109 (2) 2,275 (2)
2009 1,515 (2) 1,238 (2) 2,754 (2)

(1) Preliminary data.
(2) Estimated by the Investment Company Institute.

Note: Components may not add to totals due to rounding.

Source: Investment Company Institute.

View Archived Tables

 

 

AVERAGE ASSET ALLOCATION FOR ALL 401(K) PLAN BALANCES, 2012 (1)

(1) Percentages are dollar-weighted averages.

Source: Investment Company Institute, ICI Research Perspective, 19 no. 12. www.ici.org.

View Archived Graphs