401(k)s and Other Defined Contribution Plans - US

Published by: Mintel International Group Ltd.

Published: Oct. 1, 2007 - 101 Pages

Table of Contents

SCOPE AND THEMES

What you need to know

Abbreviations and terms

Abbreviations

Terms

EXECUTIVE SUMMARY

Industry overview

Market overview

Figure 1: DC plan assets, 1996-2006

Small businesses

Automatic enrollment

Investment trends

Recent legislation

New products in the marketplace

The Mintel 401(k) consumer survey

Figure 2: Attitudinal differences between 401(k) owners and non-owners, January-October 2006

MARKET DRIVERS—ENROLLMENT AND INVESTMENT ISSUES

Enrollment and participation rates stagnating

Impact of automatic enrollment

Figure 3: Employer reasons for not adopting automatic enrollment in the future, 2007

Permanent status for the Roth 401(k)

Figure 4: Reasons for employers not adopting Roth 401(k) in near future. February 2007

Popularity of IRAs and impact of rollovers

Emergence of the CIT

Inroads made by ETFs

Lifecycle and lifestyle funds re-energized by PPA

Figure 5: Percentage of assets in lifecycle and lifestyle funds, IRAs and employer-sponsored DC plans, 1997-

2006

DC plans using advisors as intermediaries

Figure 6: Type of advisor used by employers to evaluate investment options, 2007

Figure 7: Items of importance in selecting or evaluating a DC plan provider (ratings), 2007

Figure 8: Default investment using automatic enrollment, 2007

Investment-only business

Rising awareness of healthcare costs as part of retirement savings

Matching contributions

Automatic enrollment

“Prepackaged” advice

Targeting efforts toward the next generation of retirement savers

MARKET DRIVERS—DESIRED PLAN BENEFITS AND USE OF ADVISORS

What employees care about

Figure 9: Employees: Importance of benefits offered, February 2007

Figure 10: Employers: Importance of benefits offered, February 2007

Figure 11: Employees: Likelihood of switching to company with retirement plan, February 2007

Figure 12: Employees: Importance of matching contribution, February 2007

Figure 13: Employees: Matching contribution offered, February 2007

Participants’ use of advisors and need for advice

Figure 14: Employees: Have a professional financial advisor, February 2007

Figure 15: Employees: Services of professional financial advisor, February 2007

Figure 16: Employees: Rely on outside experts, February 2007

What employers are doing about advice

Figure 17: Employer: Company preference for usage of guidance/advice, February 2007

Figure 18: Employer: Reasons for not offering investment guidance/advice, February 2007

Figure 19: Employer: Entity that should be most accountable for selecting and monitoring investment options in

a retirement plan, February 2007

Figure 20: Employer: What is offered to help transition employees, February 2007

MARKET DRIVERS—LEGISLATIVE DEVELOPMENTS

403(b)s to be more like 401(k)s

Automatic IRAs

Proposal to make index funds mandatory for 401(k)s

Decline of the defined benefit plan

What plan sponsors are doing

Figure 21: Reasons not to offer employee funded retirement plan in next two years, February 2007

Figure 22: Length of time with current plan administrator, February 2007

Figure 23: Changes to plan in past 12 months, February 2007

Figure 24: Types of changes to 401(k) plans in last 12 months, February 2007

OTHER MARKET DRIVERS

Tax-exempt workers

Small businesses

Growing popularity of socially responsible funds

Behavioral finance begins to play a role

Non participation and financial behavior

Figure 25: Retirement confidence survey, 2007

Figure 26: Expected standard of living during first five years of retirement, 2007

MARKET SIZE AND SEGMENTATION

Types of pension plans and market penetration

Figure 27: Defined contribution plan assets, 1996-2006

401(k)s

Figure 28: Top defined contribution plan managers, 2006

Mutual fund classes

Figure 29: Mutual fund retirement assets by type of account and fund, year end 2006

Figure 30: DC record keepers, by total record kept assets, 2007

Figure 31: DC record keepers, by percentage increase in record kept assets, 2005-06

Figure 32: DC record keepers, by number of record kept plans, 2007

Figure 33: DC record keepers, by total record kept participants, 2007

Figure 34: DC record keepers, by record kept assets in 401(k) plans, 2007

Figure 35: DC record keepers, by record kept assets in 403(b) plans, 2007

Figure 36: Percentage share of total 403(b) plan assets, by type of institution, 1996-2006

Figure 37: DC record keepers, by record kept assets in 457 plans, 2007

Figure 38: DC record keepers, by record kept assets per plan, 2007

Figure 39: DC record keepers, by new plans won in 2006

Distribution of assets in the DC plans

Figure 40: Where U.S. retirement assets are held, year end 1996 -2006

Figure 41: Defined contribution plan assets held in mutual funds vs. other investments, 1996-2006

IRAs

Figure 42: Source of IRA assets, by percent of total IRA assets, year-end 2004

Figure 43: where IRA assets are held, percentage share by type of institution, 1996-2006

Age and worker tenure

Figure 44: Percentage of plan participants, by age, August 2007

Figure 45: Percentage of plan participants, by job tenure, August 2007

Asset allocation by participants in DC plans

Lifecycle and lifestyle funds

Figure 46: Lifecycle fund assets and market share - top five complexes as of July 2007

Levels of DC plan participation

Figure 47: Participation in defined contribution retirement plans by selected worker and establishment

characteristics, private industry, 2006

Figure 48: Percentage of salary toward retirement this year, February 2007

Figure 49: Changed percentage of contribution in past 12 months, February 2007

Account balances

Figure 50: Average account balance, by age and tenure, 2006

Figure 51: Median account balance among long-tenured participants, by age and salary, 2006

Asset allocation strategies

Figure 52: Level of understanding of asset allocation, February 2007

Figure 53: Current retirement savings allocation, February 2007

Figure 54: Average asset allocation of 401(k) accounts, by participant age (% of account balances), 2006

Figure 55: Distribution of 401(k) plans, participants and assets by investment options, 2006

COMPETITIVE LANDSCAPE

New products in the marketplace

Lifecycle funds

Additional savings programs

Advice products

Rollovers

Retirement Income through annuity-type products

Behavioral finance initiatives

ADVERTISING AND PROMOTION

Figure 56: Top 10 mutual fund advertisers, advertising spend, January-May 2007

Notable print and direct mail advertising

Figure 57: fidelity low-cost annuity print advertisement, October 2007

Figure 58: e401(k) Retirement Plan from Fidelity Investments, enrollment mailer, August 2007

Figure 59: TIAA-CREF print advertisement, October 2007

Figure 60: Retirement funds from Vanguard print advertisement, July 2007

Figure 61: TD Ameritrade target date exchange traded funds print advertisement, October 2007

THE CONSUMER—WHO OWNS WHAT AND HOW MUCH IS INVESTED

401(k) plan participant demographics

Types of plans owned

Figure 62: Ownership of retirement plans, by gender, August 2007

Figure 63: Ownership of retirement plans by age, August 2007

Figure 64: Ownership of retirement plans by income, August 2007

Figure 65: Ownership of retirement plans by race/ethnicity, August 2007

Figure 66: Ownership of DC retirement plans by level of education, August 2007

Figure 67: Ownership of DC retirement plans by employment status, August 2007

Household assets in retirement accounts

Figure 68: Total invested in all of household’s retirement accounts (such as 401(k), IRA, etc.), by gender,

August 2007

Figure 69: Total invested in all of household’s retirement accounts (such as 401(k), IRA, etc.), by age, August

2007

Figure 70: Total invested in all of household’s retirement accounts (such as 401(k), IRA, etc.), by income,

August 2007

Figure 71: Total invested in all of household’s retirement accounts (such as 401(k), IRA, etc.) by race/ethnicity,

August 2007

Figure 72: Total invested in all of household’s retirement accounts (such as 401(k), IRA, etc.), by presence of

children, August 2007

Retirement savings: Attitudinal differences

Figure 73: Attitudinal differences between 401(k) owners and non-owners, January-October 2006

THE CONSUMER—TYPES OF INVESTMENTS AND PLANNING UNDERTAKEN

Retirement savings: Financial planning activities

Figure 74: Types of financial planning done, by gender, August 2007

Figure 75: Types of financial planning done, by age, August 2007

Figure 76: Types of financial planning done, by income, August 2007

Figure 77: Types of financial planning done, by race/ethnicity, August 2007

Consumers and lifecycle funds

Figure 78: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by gender,

August 2007

Figure 79: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by age, August

2007

Figure 80: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by income,

August 2007

Figure 81: I invest in lifecycle or lifestyle funds that automatically rebalance my portfolio for me, by

race/ethnicity, August 2007

Consumers and investment decision making

Figure 82: Primarily make the decisions in household as to how retirement savings should be invested, by

gender, August 2007

Figure 83: Primarily make the decisions in household as to how retirement savings should be invested, by age,

August 2007

Figure 84: Primarily make the decisions in household as to how retirement savings should be invested, by

income, August 2007

Figure 85: Primarily make the decisions in household as to how retirement savings should be invested, by

race/ethnicity, August 2007

Consumers and use of advisors

Figure 86: I pay an independent advisor to manage my account for me, by age, August 2007

Figure 87: I pay an independent advisor to manage my account for me, by income, August 2007

Figure 88: I pay an independent advisor to manage my account for me, by race/ethnicity, August 2007

Figure 89: I would be interested in having someone manage my account for me for a flat fee, by gender, August

2007

Figure 90: I would be interested in having someone manage my account for me for a flat fee, by age, August

2007

Figure 91: I would be interested in having someone manage my account for me for a flat fee, by income, August

2007

Figure 92: I would be interested in having someone manage my account for me for a flat fee, by race/ethnicity,

August 2007

Figure 93: Percentage who have obtained advice from a financial professional in the past year

THE CONSUMER—INCIDENCE OF CHANGING INVESTMENTS AND VIEWS ON RETIREMENT PLAN OPTIONS

Consumers and involvement in monitoring retirement accounts

Figure 94: I have changed the investments in my retirement portfolio in the last year, by gender, August 2007

Figure 95: I have changed the investments in my retirement portfolio in the last year, by income, August 2007

Consumers and the number of investment options in their plans

Figure 96: I feel that there are not enough investment options in my retirement plan, by gender, August 2007

Figure 97: I feel that there are not enough investment options in my retirement plan, by age, August 2007

Figure 98: I feel that there are not enough investment options in my retirement plan, by race/ethnicity, August

2007

Are there too many options?

Figure 99: I feel there are too many options in my retirement plan, by age, August 2007

Figure 100: I feel there are too many options in my retirement plan, by income, August 2007

Figure 101: I feel there are too many options in my retirement plan, by race/ethnicity, August 2007

Figure 102: I feel there are too many options in my retirement plan, by marital status, August 2007

Consumers and use of the Internet for decision making

Figure 103: I use information from sources on the Internet to make decisions about my retirement savings, by

age, August 2007

Figure 104: I use information from sources on the Internet to make decisions about my retirement savings, by

income, August 2007

Consumers and level of understanding of investment options in their plans

Figure 105: I understand all of the investment options offered in my retirement savings plan, by gender, August

2007

Figure 106: I understand all of the investment options offered in my retirement savings plan, by income, August

2007

Consumers and account monitoring

Figure 107: I do not pay as much attention to my retirement portfolio as I should, by gender, August 2007

Figure 108: I do not pay as much attention to my retirement portfolio as I should, by age, August 2007

THE CONSUMER—INTEREST IN GUARANTEED PRODUCTS AND ETFS

Consumers and guaranteed products

Figure 109: Interested in mutual funds that incorporate a guarantee component, by age, August 2007

Figure 110: Interested in mutual funds that incorporate a guarantee component, by income, August 2007

Figure 111: Interested in mutual funds that incorporate a guarantee component, by race/ethnicity, August 2007. 98

Consumers and exchange traded funds

Figure 112: Interest in exchange traded funds for retirement accounts, by age, August 2007

Figure 113: Interest in exchange traded funds for retirement accounts, by income, August 2007

Figure 114: Interest in exchange traded funds for retirement accounts, by race/ethnicity, August 2007

THE CONSUMER—WHO THEY TURN TO FOR RETIREMENT ADVICE AND WHY

Consumers and trust: Who they rely on for retirement advice

Figure 115: Most trusted to give good retirement planning advice, by age, August 2007

Figure 116: Most trusted to give good retirement planning advice, by income, August 2007

Figure 117: Most trusted to give good retirement planning advice, by race/ethnicity, August 2007

What inspires consumers’ trust

Figure 118: Why consumers trust an organization the most, by gender, August 2007

Figure 119: Why consumers trust an organization the most, by age, August 2007

Figure 120: Why consumers trust an organization the most, by income, August 2007

FUTURE TRENDS AND FORECAST

“Automatic” solutions

“Single Decision” investment options

Rise of the Roth

Increased access to advice

Expanding role of advisors

Increased interest in offering investment only business

Emphasis on retirement income solutions

Increased competition for rollover IRAs

Increased availability of CITs and ETFs

Increased emphasis on the Internet to facilitate retirement planning

Defined Contribution retirement plans for small employers

More targeted approach to encouraging retirement plan participation

Healthcare as part of retirement savings

APPENDIX: TRADE ASSOCIATIONS

Investment Company Institute

Employee Benefits Research Institute

401(k) Council for America

Society of Professional Administrators and Recordkeepers (SPARK)

American Association of Retired Persons

Abstract

With increased job mobility, the 401(k) rollover market is poised to take off. Expected to add $2.5 trillion to the IRA market over the next eight years (2005-2013), the rollover opportunity has been termed by one Fidelity executive as, “the biggest movement of assets that the financial services industry will ever see.”

To ensure their position in this market, savvy providers are focusing on getting closer to participants. Financial advice can be a smart strategy to gain mindshare and market share of plan participants for ancillary products. In Mintel’s research, we have found that participants are a knowledgeable, inquiring target market, ready and willing to be engaged with a discussion about their investments and their financial security. More than 52% already use professional assistance for making decisions regarding retirement accounts—and more than three-quarters want to know as much as possible before committing to a financial service.

This leaves a wide-open opportunity for providers to provide value-added service such as managed accounts. Mintel has found a genuine opportunity for investment managers: 34% of those who have a workplace retirement plan would be willing to pay a professional to manage their account. This acceptance of managed accounts cuts across all segments: young people, Baby Boomers, high and low income participants, married, unmarried, north, south, east, and west.

Mintel believes that the 401(k) plan market has room to grow, and that assets will increase along with number of participants. This is because more plans are automatically enrolling participants into age-targeted retirement funds. This should dramatically increase participation, increasing opportunities for platform providers and investment managers.

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