ICI: Funds Clung to Retirement Market Share in 2002

July 1, 2003 (PLANSPONSOR.com) - Despite a bumpy investment market, mutual funds managed to hang on to its 21% share of the US retirement market last year, some $2.1 trillion, according to the Investment Company Institute (ICI).

According to the ICI report  Mutual Funds and the US Retirement Market in 2002 , mutual funds have held 21% of total retirement assets since 2000. The industry may have been able to keep its arms wrapped around its asset share, but the value of retirement assets in general, and retirement assets in mutual funds both felt the bear market’s claws,  with each suffering an 8% drop in 2002. The drop in retirement mutual fund assets was almost entirely in the equity space, ICI said.

ICI reported that YE 2002 fund assets held in retirement accounts represented about a third of all fund assets., while those same retirement accounts held nearly half (44%) of all long-term fund assets. Net flows to mutual funds from retirement accounts slowed a bit in 2002, dropping to an estimated $114 billion in 2002 from $149 billion.

However, retirement account inflows to equity funds turned in a stronger performance than those for nonretirement accounts which suffered a $54 billion outflow last year.  Retirement flows to bond funds were up to $51 billion in 2002, from $38 billion the year before.

Focusing on the domestic retirement market, ICI said that as of year-end 2002, it was comprised of

  • IRAs with 23% or $2.3 trillion
  • DC plans with 22% or $2.2 trillion
  • DB plans (including private, local, state and federal government) with 44% or $4.5 trillion
  • Fixed/Variable Annuities with 12% or $1.2 trillion.  

If investors were skittish at all about fund assets held in IRAs, it was only in equity funds, according to ICI, since fixed income and money market fund assets posted gains last year. For example, equity fund assets dropped to $553 billion last year from $710 billion in 2001.  Net new cash flow from IRAs to mutual funds was an estimated $50 billion in 2002, down substantially from the $74 billion the year before.

Funds and the DC Space

The ICI report said that mutual fund assets in DC plans dropped 11% in 2002 to $1 trillion. Equity fund assets held by DC plans dropped 19% last year. The drop in assets due to drooping stock prices was offset somewhat by an estimated net new cash flow of $27 billion. At year-end 2002, ICI said, of the fund assets,   DC plans held:

  • 68% of assets in mutual funds were in equity funds including 61% in domestic funds and 7% in foreign funds
  • 11% each of assets in mutual funds held in hybrid and bond funds
  • 10% in money market funds.

In the DC space, fund assets in 401(k) plans were $686 billion – about 45% of all K plan assets, ICI said. At the same time, fund assets in DC plans other than 401(k) programs fell to $328 billion last year from $373 billion in 2001.