Retirement Plan Participation and Asset Allocation, 2004

February 2007, Vol. 28, No. 2
Paperback, 12 pp.
PDF, 656 kb
Employee Benefit Research Institute, 2007

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Executive Summary

Updating previous EBRI research: This article updates previous EBRI research on asset allocation in defined contribution plans and individual retirement accounts (IRAs) using the latest data from the Survey of Consumer Finances (SCF), a triennial interview survey of U.S. families sponsored by the Federal Reserve in cooperation with the U.S. Department of the Treasury. The SCF measures the financial characteristics and status of American families.

Sponsorship rate steady: From 1992, the percentage of family heads working for an employer that sponsored a retirement plan remained steady, at or just over 61 percent.

Participation rate down: In 2004, 46 percent of working family heads participated in their employer’s retirement plan, a drop of more than 2 percentage points from 2001.

Defined contribution dominance continues to grow: There has been a significant increase in the percentage of family heads with a defined contribution plan (typically a 401(k)-type plan). In 2004, almost 26 percent of family heads who participated in an employment-based retirement plan had a defined benefit (pension) plan only, while 56 percent had a defined contribution (401(k)-type) plan only, while the remaining 18 percent had both a defined benefit and defined contribution plan. This was a significant change from 1992, when 42.3 percent had a defined benefit plan only and 40.8 per-cent had a defined contribution plan only. This trend toward more defined contribution plan use occurred across all employer sizes, but most of the shift occurred in the mid-1990s, with the shift leveling off recently.

Small firms are seeing the biggest changes: The most significant changes occurred in the smaller firms, with increased or unchanged participation levels among family heads in these firms and larger shifts to defined contribution plans (mostly for employees of firms with 10 or more employees). Family heads in largest firms experienced less movement to defined contribution plans and a decline in their likelihood of participating in a plan.

Asset allocation affected by individual account ownership: Besides typical demographic factors, the asset allocation that family heads apply to their retirement plan seems to be affected by their ownership of other types of retirement plans. Both those who own 401(k)-type plans and those who own IRAs are more likely to be invested all in stocks if they also own the other type of plan, although some of the difference related to IRAs is due to the high percentage of older IRA participants without a 401(k)-type plan. As family heads have more accounts or more wealth, they are more likely to be more invested in stocks.