IRAs, DC Plans Top Retirement Savings Vehicles

May 8, 2013 ( – Assets in employer-sponsored retirement plans, IRAs, and annuities totaled $19.5 trillion at year-end 2012, up 8.6% from year-end 2011.

According to the Investment Company Institute’s (ICI) most recent Fact Book, the largest components of retirement assets were IRAs and employer-sponsored defined contribution (DC) plans, holding $5.4 trillion and $5.1 trillion, respectively, at year-end 2012. Other employer-sponsored plans include private-sector defined benefit (DB) pension funds ($2.6 trillion), state and local government employee retirement plans ($3.2 trillion), and federal government plans—which include both federal employees’ DB plans and the Thrift Savings Plan ($1.6 trillion). In addition, there were $1.7 trillion in annuity reserves outside of retirement plans at year-end 2012.  

Sixty-eight percent of U.S. households (or 82 million households) reported that they had employer-sponsored retirement plans, IRAs, or both in May 2012. Sixty percent of U.S. households reported that they had employer-sponsored retirement plans—that is, they had assets in DC plan accounts, were receiving or expecting to receive benefits from DB plans, or both. Forty percent of households reported having assets in IRAs, and 32% of households had both IRAs and employer-sponsored retirement plans.   

Assets in employer-sponsored DC plans have grown more rapidly than assets in other types of employer-sponsored retirement plans over the past quarter century, increasing from 27% of employer plan assets in 1985 to 41% at year-end 2012. At the end of 2012, employer-sponsored DC plans—which include 401(k) plans, 403(b) plans, 457 plans, Keoghs, and other DC plans—held an estimated $5.1 trillion in assets. With $3.6 trillion in assets at year-end 2012, 401(k) plans held the largest share of employer-sponsored DC plan assets. Two types of plans similar to 401(k) plans—403(b) plans and 457 plans—held another $1 trillion in assets. The remaining $485 billion in DC plan assets was held by other DC plans without 401(k)-like features.

Retirement Savings Investments  

At year-end 2012, mutual funds held in DC plans and IRAs accounted for $5.3 trillion, or 27%, of the $19.5 trillion U.S. retirement market. The $5.3 trillion in mutual fund retirement assets represented 41% of all mutual fund assets at year-end 2012. Retirement savings accounts were a significant portion of long-term mutual fund assets industry-wide (48%), but were a relatively minor share of money market fund assets industry-wide (14%). Similarly, as a share of households’ mutual fund holdings, mutual fund assets held in DC plans and IRAs represented 51% of household long-term mutual funds, but only 21% of household money market funds.  

Within the total U.S. retirement market, mutual funds play a significant role in IRAs and employer-sponsored DC plans. At year-end 2012, investors held slightly more mutual fund assets in DC plans ($2.9 trillion or 57% of total DC plan assets) than they held in IRAs ($2.5 trillion, or 46% of total IRA assets). Among DC plans, 401(k) plans were the largest holder of mutual funds, with $2.1 trillion in assets. At year-end 2012, 403(b) plans held $383 billion in mutual fund assets, 457 plans held $88 billion, and other DC plans held $262 billion.  

Fifty-three percent of the $5.3 trillion in mutual fund retirement assets held in DC plans and IRAs at year-end 2012 was invested in domestic or world equity funds. By comparison, about 45% of overall fund industry assets—including retirement and nonretirement accounts—were invested in domestic or world equity funds at year-end 2012. Domestic equity funds alone constituted about $2.2 trillion, or 40%, of mutual fund assets held in DC plans and IRAs. Retirement investors also gain exposure to equities and fixed-income securities through hybrid funds. At year-end 2012, 22% of mutual fund assets held in DC plans and IRAs were held in hybrid funds, which invest in a mix of equity, bond, and money market securities.  

At year-end 2012, the remaining 25% of mutual fund assets held in DC plans and IRAs were invested in bond funds and money market funds. Bond funds held $933 billion, or 17%, of mutual fund assets held in DC plans and IRAs, and money market funds accounted for $379 billion, or 7%.   

Assets in target-date and lifestyle mutual funds totaled $773 billion at the end of 2012, up from $638 billion at year-end 2011. Target-date mutual funds’ assets were up 28% in 2012, increasing from $376 billion to $481 billion. Assets of lifestyle mutual funds increased in 2012, rising from $262 billion to $292 billion. The bulk (91%) of target-date mutual fund assets was held in retirement accounts, compared with 42% of lifestyle mutual fund assets.  

The 2013 Investment Company Fact Book is here.