Administration February 4, 2003

Bear Market Yielded Lackluster 401k Growth in 2000

April 26, 2001 (PLANSPONSOR.com) - Most of the slim $2 billion increase in combined investments for 401(k) plans between 1999 and 2000 was due to contributions by employers and employees as opposed to increases in investment returns, according to a new report.
Reported by

The study, conducted by the Spectrem Group on behalf of the National Defined Contribution Council, showed combined investment growth for the nation’s 401(k) plans nearly unchanged last year compared to 1999. Total 401(k) assets grew to $1.7 trillion during the period.

Since 44% of assets in 401(k) plans are invested in equities, the lackluster growth can be attributed to the stock market slide last year.

Though the survey focused chiefly on 401(k) plans, results show that for all types of retirement plans assets shrank by 3% to $8.2 trillion.

Findings

Results from the survey, which included data collected from about 800 plan sponsors and 1,000 participants also show that:

  • 2.4 million plan participants joined the 401(k) market, bringing the number to 37.1 million.
  • the average account balance was $49,160, in comparison to $31,700 in 1994
  • most participants have at least one other savings vehicle, primarily an IRA
  • the average number of investments offered to 401(k) holders increased to an average of 9.1 per plan, double the 1994 average.
  • however, the average number of investment options actually chosen by the participants was little changed from 1994, at only 3.4.

On-Line Info

The survey also found that in 2000, use of the Internet in financial planning decisions is steadily increasing, specifically:

  • some 16.1% of participants used the Internet for investment decisions last year, up from 14% the previous year and 1.8% in 1994,
  • almost 30% of those surveyed obtained information about savings and investments on line during the last six months of 2000.

Among Web sites not belonging to financial service providers,

  • Morningstar was used by 11.7% of those surveyed
  • followed by Yahoo, used by 6%
  • while 3.3% logged onto CNN
  • and 3.3% used the Motley Fool.

The Mix

Other results showed:

  • asset distribution in equities remained at 44% throughout the year, unchanged from 1999
  • while other asset distributions, including company stock, fell 1% to 18% of all holdings
  • balanced asset allocation, rose 1% to 13%
  • bonds, increased by 1% to 7%
  • guaranteed/stable value funds, shrank by 1% to total 13%
  • money market allocations remained at 3%
  • while all other investments holding were unchanged at 2%.

Management Style

Of all 401(k) assets:

  • mutual fund providers manage 49%
  • 22% is managed by banks,
  • 16% is overseen by insurance companies
  • while 13% is held either in-house or by other means.

The rate of contribution to 401(k)s has steadily increased from 6.9% in 1994 to 8.4% last year.

Assets in defined benefits plans dropped 6% as plan sponsors replaced defined benefits plans with defined contribution plans.

– Camilla Klein      editors@plansponsor.com

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