DC Plan Balances Cut 15% by Downturn

August 5, 2009 (PLANSPONSOR.com) - Median asset levels in defined contribution and IRA/Keogh plans dropped at least 15% from year-end 2007 to mid-June 2009, according to an analysis of Federal Reserve data by the nonpartisan Employee Benefit Research Institute (EBRI).

EBRI adjusted data from the Federal Reserve Board’s 2007 Survey of Consumer Finances (SCF) to account for the economic downturn in 2008. Among all families with a defined contribution plan, the median plan balance was $31,800 in 2007, up 16% from 2004, but according to EBRI estimates, this dropped 16.4% (to $26,578) from year-end 2007 to mid-June 2009.

Losses were higher for families with more than $100,000 a year in income (down 22%) or those having a net worth in the top 10% (down 28%).

Among all families with an IRA/Keogh plan, the median value of their plan was $34,000 in 2007, up 3% from 2004, and EBRI estimates this median value dropped 15% (to $28,955) from year-end 2007 to mid-June 2009.

According to the Federal Reserve data, in 2007, 40.6% of families had a participant in an employment-based retirement plan – either a defined benefit or defined contribution – from a current job, the EBRI analysis reports. This was up from 38.8% in 1992, but virtually unchanged from 40.3% in 2004.

A significant shift in the plan type occurred from 1992 – 2007, with the share of families with a retirement plan having only a defined benefit plan decreasing from 40% to 17.4%. The share of families participating in only a defined contribution plan rose from 37.5% in 1992 to 60.3% in 2007. The percentage of families with both types of plans was unchanged from 1992 to 2007 at 23%.

Families that owned either an IRA or a Keogh plan increased in 2007 to 30.6% from 29.1% in 2004 – a significant increase from 26.1% in 1992. Ownership of an IRA increased with family income, the family head’s educational level, and the family’s net worth, EBRI said.

While regular IRAs account for the largest percentage of IRA ownership, rollover IRAs had a larger share of assets than regular IRAs in 2007.

The analysis is in the August 2009 EBRI Issue Brief, available at www.ebri.org .