The year 2010 was another good one for individuals who participate in employer-sponsored retirement plans, albeit not quite as good as 2009. Overall, the assets in these plans grew to $10.2 trillion as of year-end 2010, up 9.7% from $9.3 trillion at the end of 2009. Assets held in Individual retirement Accounts (IRAs) grew at an even faster pace (12.3%) to reach an estimated $4.8 trillion.
Growth was strongest for defined contribution plans, which grew 12.2% to reach $5.1 trillion. Within the total, 401(k) plans, the most common type plan, outpaced all other plan types by growing $2.67 trillion, up 13.6% from $2.3 trillion at year-end 2009. Defined benefit plans grew to $5.05 trillion, up 7.1% from $4.72 trillion a year earlier.
The growth of 401(k) and other savings type defined contribution plans was driven by both strong investment returns in 2010 and by ongoing employee and employer contributions. On average, participant contributions are 6.1% of compensation, still below the 7.0% seen in 2007 before in the financial crisis. While many employers have restored the matching contributions they reduced or eliminated following the financial crisis, there remains a significant minority, particularly among smaller companies, that have either not restored the match or who are matching at a lower level than was the case two years ago.
Participants have also moved their investment back towards equities. The proportion of 401(k) assets held in fixed income vehicles was 29% at year-end 2010, compared with 39% one year earlier. The popularity of target date and other asset allocation funds continued to grow in 2010, with the proportion of assets held in these funds increasing to 16% of the total, up from 15% at the end of 2009.
©Spectrem Group 2011
Finally, there has been a considerable amount of discussion in the media about how prepared (or unprepared) the aging Baby Boomers are for retirement. A Spectrem survey conducted in 2010 indicates that there is no one answer to this question. Some, particularly the 12% who expect their retirement plan balances to be $1 million or more, seem quite well prepared. Other, particularly the 22% who expect their plan balance at retirement will be less than $300,000 are considerably less well prepared.
In summary, the retirement market is healthier at the end of 2010 than it was at either year-end 2009 or 2008. Assets are up and they appear to be invested in a way that will generate strong growth so long as investment returns remain near their historic averages. At the individual level, however, there is still a sizable proportion of individuals who are saving enough to maintain their quality of life in retirement.