Contribution, Asset Allocation, Loan and Withdrawal Activity Among Retirement Savers Remarks for the...

Contribution, Asset Allocation, Contribution, Asset Allocation, Loan and Withdrawal Activity Loan and Withdrawal Activity

Among Retirement SaversAmong Retirement Savers

Contribution, Asset Allocation, Contribution, Asset Allocation, Loan and Withdrawal Activity Loan and Withdrawal Activity

Among Retirement SaversAmong Retirement Savers

Remarks for the

Dartmouth College SymposiumHow to Increase Effectiveness of

Financial Education

Sarah HoldenInvestment Company Institute

Jack VanDerheiTemple University, EBRI Fellow

October 17, 2005

2

OverviewOverviewOverviewOverview

• 401(k) Participants The Participation Decision Contributions Asset Allocation Loans and Withdrawals

• What Can 401(k) Accumulations Generate at Retirement?

• IRA Owners The Participation Decision Contributions Asset Allocation Withdrawals

• Appendix Job Change and Retirement

• Bibliography

3

The 401(k) Participation The 401(k) Participation DecisionDecision

The 401(k) Participation The 401(k) Participation DecisionDecision

• Choi, Laibson, Madrian & Metrick (July 2004)

• Fidelity Investments (2004)

• Automatic enrollment increases participation rates, especially among lower income workers (see Holden & VanDerhei (July 2005) for discussion and references)

• ICI (Spring 2000) 401(k) Household Survey Asked Why Participated and Why Didn’t

4

Reasons for Participating in the Reasons for Participating in the 401(k) Plan401(k) Plan1,21,2

Reasons for Participating in the Reasons for Participating in the 401(k) Plan401(k) Plan1,21,2

10%

15%

19%

23%

55%

64%

67%

85%

Advice from fellowemployees

Advice of friend or familymembers

Ability to take a loan from theplan

Ability to make a hardshipwithdrawal from the plan

Payroll deduction feature

Tax-deferred status ofcontributions

Company match

Concern about fundingretirement

3

3

1Percent of 401(k) plan participants indicating reason was “very important.”2Multiple responses included. Number of respondents varies.3Asked of those offered the feature.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000

3

5

Reasons for Not Participating Reasons for Not Participating in the 401(k) Planin the 401(k) Plan1,21,2

Reasons for Not Participating Reasons for Not Participating in the 401(k) Planin the 401(k) Plan1,21,2

31%

32%

36%

57%

66%

Advice from a family member,friend, or professional

financial advisor

401(k) plan's features areconfusing

401(k) plan has features therespondent does not like

Household is saving forretirement in some other way

Respondent does not haveextra money to save

1Percent of 401(k) plan non-participants indicating reason was “very” or “somewhat” important.2Multiple responses included. Number of respondents varies.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000

6

401(k) Plan Education Primary 401(k) Plan Education Primary PurposePurpose

(percent of plans)

401(k) Plan Education Primary 401(k) Plan Education Primary PurposePurpose

(percent of plans)

6%

5%

26%

11% 15%

38% Increase Participation

OtherIncrease Employee Appreciation for the

Plan

Introduce Plan Changes

Improve Asset Allocation

Increase Deferrals (Employee Contributions)

Note: Components do not add to 100 percent because of rounding.Source: Profit Sharing/401(k) Council of America (PSCA), 48th Annual Survey of Profit Sharing and 401(k) Plans: Reflecting 2004 Plan Experience, 2005

7

EBRI/ICI Participant-Directed EBRI/ICI Participant-Directed Retirement Plan Data Collection ProjectRetirement Plan Data Collection Project

EBRI/ICI Participant-Directed EBRI/ICI Participant-Directed Retirement Plan Data Collection ProjectRetirement Plan Data Collection Project

• Collaborative effort of the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI)

• Have collected annual data for 1996–2004 from a variety of recordkeepers covering a variety of plans

• 16.3 million 401(k) participants in 2004 (38% of the 401(k) universe)

• 45,783 plans in 2004 (10% of universe)

• $926.2 billion in assets in 2004 (44% of universe)

• Representative sample of the universe

• Analyze account balances, asset allocation, and loan activity in annual updates.

• Special Reports—contribution activity, EBRI/ICI 401(k) Accumulation Projection Model

Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005 and September 2005—Appendix))

8

401(k) Plan Participant 401(k) Plan Participant Contribution ActivityContribution Activity

401(k) Plan Participant 401(k) Plan Participant Contribution ActivityContribution Activity

• What influences 401(k) plan participants’ contribution activity?

• 401(k) Participants Respond to “Corner” Points EGTRRA Catch-Up Contributions Automatic Enrollment Defaults Internal Revenue Code Limit Match Level for Employer Contribution

Age Loan Provision

Tenure Employer Match

Income Limits and Nondiscrimination Testing

9

Among Participants Making Among Participants Making Contributions, Percentage of Contributions, Percentage of

Participants at 402(g) Limit by SalaryParticipants at 402(g) Limit by Salary1,21,2

Among Participants Making Among Participants Making Contributions, Percentage of Contributions, Percentage of

Participants at 402(g) Limit by SalaryParticipants at 402(g) Limit by Salary1,21,2

11%

39%

22%18%

13%

7%

2%

$60,000 orless

>$60,000to $70,000

>$70,000to $80,000

>$80,000to $90,000

>$90,000to

$100,000

>$100,000 All

Salary Range

Non-Highly Compensated Employees Highly Compensated Employees

1Percent of participants in salary range.2Excludes participants earning less than $40,000 a year because another IRC limit prevented them from reaching the §402(g) limit. Tabulated from a sample of 0.8 million participants.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (October 2001))

10

401(k) Participants Contributing at 401(k) Participants Contributing at Employer Contribution Match Level by Employer Contribution Match Level by

SalarySalary1,21,2

401(k) Participants Contributing at 401(k) Participants Contributing at Employer Contribution Match Level by Employer Contribution Match Level by

SalarySalary1,21,2

16%

15%

17%

16%16%

15%

$20,000 to$40,000

>$40,000 to$60,000

>$60,000 to$80,000

>$80,000 to$100,000

>$100,000 All

Salary Range

Non-Highly Compensated Employees Highly Compensated Employees

1Percent of participants in salary range. Contributions in 19992Sample of nearly 1 million participants (whether contributing or not) for whom employer matching contribution information was provided or derived.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (October 2001))

11

401(k) Participants’ Asset 401(k) Participants’ Asset AllocationAllocation

401(k) Participants’ Asset 401(k) Participants’ Asset AllocationAllocation

• What influences 401(k) plan participants’ asset allocations?

• EBRI/ICI database analyses 401(k) participant asset allocation by age, tenure, salary, plan size, and investment option.

• 401(k) plans generally have lots of investment options.

EBRI/ICI Research* finds:Participants are offered 10.4 options, on average, But, 2.5 options are chosen, on average.Participants are not “naïve” – less than 1% had followed 1/n.The more equity options, the higher the allocation to equity

funds.

Age Recent Mkt. Returns Income Family Plan Materials/Design Other? Education Number of Investments

*See Holden & VanDerhei (May 2001).

12

401(k) Participants Now More 401(k) Participants Now More Likely to Choose Balanced FundsLikely to Choose Balanced Funds1,21,2

401(k) Participants Now More 401(k) Participants Now More Likely to Choose Balanced FundsLikely to Choose Balanced Funds1,21,2

7.416.0

66.9 49.2

10.5

8.4

12.824.2

1998 2004

Participants in their 20s

Fixed-IncomeInvestments

Company Stock

Equity Funds

Balanced Funds

1401(k) plan average asset allocation among participants with two or fewer years of tenure, percent of total. Minor investment options are not shown; therefore, column percentages do not add to 100 percent.2Drawn from samples of 1.2 million participants with two or fewer years of tenure in 1998 and 1.8 million participants with two or fewer years of tenure in 2004.3Fixed-Income investments include bond funds, guaranteed investment contracts (GICs) and other stable value funds, and money funds. 4“Funds” include mutual funds, bank collective trusts, life insurance separate accounts, and any pooled investment product primarily invested in the security indicated.5Balanced funds include lifestyle and lifecycle funds.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005))

3

4

4,5

13

401(k) Loan and Withdrawal 401(k) Loan and Withdrawal ActivityActivity

401(k) Loan and Withdrawal 401(k) Loan and Withdrawal ActivityActivity

• Loans Loans widely available Loan option increases employee participation and

contributions Loans rarely taken

• Withdrawals Safe harbor Generally subject to taxes and penalty Withdrawals very rarely taken

Sources: Utkus (July 2005), Holden & VanDerhei (November 2002—Appendix), Holden & VanDerhei (October 2001), ICI (Spring 2000), U.S. Government Accountability Office (October 1997)

14

Loans Are Widely Available…But Loans Are Widely Available…But Rarely Taken from 401(k) PlansRarely Taken from 401(k) Plans

Loans Are Widely Available…But Loans Are Widely Available…But Rarely Taken from 401(k) PlansRarely Taken from 401(k) Plans

•Among 401(k)

participants with loans,

the level of the unpaid

balance represented 13

percent of the account

balance (net of the

unpaid loan balance) at

year-end 2004.

Have Taken Out

a Loan

Participants in Plans Offering

Loans

Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005))

19%

15

Few 401(k) Participants Take Few 401(k) Participants Take Hardship WithdrawalsHardship Withdrawals**

Few 401(k) Participants Take Few 401(k) Participants Take Hardship WithdrawalsHardship Withdrawals**

Have Not Taken a Hardship

Withdrawal96%

Have Taken a Hardship

Withdrawal4%

*Percent of 401(k) participants whose plans allow hardship withdrawals.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000 (see also Holden & VanDerhei (November 2002—Appendix))

16

Basic Elements of the EBRI/ICI 401(k) Basic Elements of the EBRI/ICI 401(k) Accumulation Projection ModelAccumulation Projection Model

Basic Elements of the EBRI/ICI 401(k) Basic Elements of the EBRI/ICI 401(k) Accumulation Projection ModelAccumulation Projection Model

• Start at Year-End 2000

401(k) Account BalanceAsset AllocationLoan Balance Annual Income

Participant Activity Inside the 401(k)

Plan

Participant Behavior Over

Working Career

Source: EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (July 2005, November 2002, and November 2002—Appendix))

• Project for Each Participant: Account Balances and Income Until Age 65• At Age 65 – Calculate Median Replacement Rate

17

Basic Model Elements: Participant Basic Model Elements: Participant Activity Inside the 401(k) PlanActivity Inside the 401(k) Plan

Basic Model Elements: Participant Basic Model Elements: Participant Activity Inside the 401(k) PlanActivity Inside the 401(k) Plan

Contributions? Amount Contributed?

Loans? Amount Borrowed?

401(k) Withdrawal?Amount Withdrawn?

Asset AllocationRebalance Portfolio

Investment Returns

Source: EBRI/ICI 401(k) Accumulation Projection Model

18

Basic Model Elements: Participant Basic Model Elements: Participant Behavior Over Working CareerBehavior Over Working Career

Basic Model Elements: Participant Basic Model Elements: Participant Behavior Over Working CareerBehavior Over Working Career

Change Jobs?

Leave Balance, Cash Out, or Roll Over?

Rollover IRA?Asset Allocation,

Investment Returns, IRA Withdrawals?

Source: EBRI/ICI 401(k) Accumulation Projection Model

19

Median Replacement Rates for Median Replacement Rates for Participants Turning 65 Between 2030 and Participants Turning 65 Between 2030 and

2039 by Income Quartile at Age 652039 by Income Quartile at Age 6511

Median Replacement Rates for Median Replacement Rates for Participants Turning 65 Between 2030 and Participants Turning 65 Between 2030 and

2039 by Income Quartile at Age 652039 by Income Quartile at Age 6511

52 51

106

31

54

87

23

59

84

16

67

84

Social Security 401(k) Accumulation Social Security and 401(k)Accumulation

Lowest

Quartile 2

Quartile 3

Highest

1Percent of final five-year average salary.2The 401(k) accumulation includes 401(k) balances at employer(s) and rollover IRA balances.Source: Tabulations from the EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (July 2005))

2

2

20

Change in Median Replacement Rates from 401(k) Change in Median Replacement Rates from 401(k) Accumulations for Participants Reaching Age 65 Accumulations for Participants Reaching Age 65 Between 2030 and 2039, by Income Quartile at 65Between 2030 and 2039, by Income Quartile at 65

Change in Median Replacement Rates from 401(k) Change in Median Replacement Rates from 401(k) Accumulations for Participants Reaching Age 65 Accumulations for Participants Reaching Age 65 Between 2030 and 2039, by Income Quartile at 65Between 2030 and 2039, by Income Quartile at 65

Scenario Lowest Second Third Highest

Baseline2 50.7 54.0 59.5 67.2

Change3

Always contributing +9.1 +8.9 +6.5 +4.6

Loans never taken +0.4 +0.3 +0.4 +0.3

No 401(k) withdrawals +6.7 +6.0 +6.0 +3.8

Stochastic coverage -27.5 -30.8 -34.7 -39.4

No cashouts +13.3 +9.1 +6.8 +4.7

No IRA withdrawals +11.1 +12.8 +14.8 +18.4

1The 401(k) Accumulation includes 401(k) balances at employer(s) and rollover IRA balances.2Percent of final five-year average salary (median).3Percentage points.Source: EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (November 2002))

21

Median Replacement RatesMedian Replacement Rates11 from 401(k) from 401(k) AccumulationsAccumulations22 for Workers Turning 65 Between for Workers Turning 65 Between

2030 and 2039 by Income Quartile at Age 652030 and 2039 by Income Quartile at Age 6533

Median Replacement RatesMedian Replacement Rates11 from 401(k) from 401(k) AccumulationsAccumulations22 for Workers Turning 65 Between for Workers Turning 65 Between

2030 and 2039 by Income Quartile at Age 652030 and 2039 by Income Quartile at Age 6533

23

37

52

33

40

54

43 45

575652

63

All Eligible Workers (401(k) PlanParticipants and Eligible Non-

Participants)

Automatic Enrollment (3%Contribution Rate; Money Market

Fund)

Automatic Enrollment (6%Contribution Rate; Life-Cycle

Fund)

Lowest Quartile 2 Quartile 3 Highest

1In all three simulations presented in this figure, workers experience continuous employment, continuous 401(k) plan coverage, and investment returns based on average annual returns between 1926 and 2001. While in the baseline, only 401(k) participants with account balances at year-end 2000 are considered; here, all eligible workers are considered.2The 401(k) accumulation includes 401(k) balances at employer(s) and rollover IRA balances.3Percent of final five-year average salary.Source: EBRI/ICI 401(k) Accumulation Projection Model (see Holden & VanDerhei (July 2005))

22

History of IRAsHistory of IRAsHistory of IRAsHistory of IRAs

• Facilitate a Commitment to Saving Tax incentives Behavioral finance

• Simplicity—Universal IRA

• Flexibility—Rollovers and Contributions

23

The IRA Participation DecisionThe IRA Participation DecisionThe IRA Participation DecisionThe IRA Participation Decision

• IRAs—Very Low Participation Rates Sailer and Holden (August 2004) Contribution Activity Varies with Age, Income

• IRA Contributions at “Corner” Points Internal Revenue Code Limit EGTRRA Catch-Up Contributions

24

Deductible Contributions to Traditional Deductible Contributions to Traditional IRAs,* 1981IRAs,* 1981–1–1987 and 2002 987 and 2002

(billions of dollars)

Deductible Contributions to Traditional Deductible Contributions to Traditional IRAs,* 1981IRAs,* 1981–1–1987 and 2002 987 and 2002

(billions of dollars)

$4.8

$28.3

$32.1

$35.4$38.2 $37.8

$14.1

$9.5

1981 1982 1983 1984 1985 1986 1987 2002

*Deductible IRA contributions reported on individual income tax returns (Form 1040).Sources: IRS, Statistics of Income Division, Individual Income Tax Returns, Publication 1304, various years and SOI Bulletin, various issues (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))

25

Percent of All Taxpayers by Percent of All Taxpayers by Eligibility for IRA DeductionsEligibility for IRA DeductionsPercent of All Taxpayers by Percent of All Taxpayers by

Eligibility for IRA DeductionsEligibility for IRA Deductions

Full Roth Contribution Instead 2%

Eligible, Taking Traditional IRA Deduction 2%Eligible, Not Taking Deduction

65%

No Taxable Compensation 12%

Covered* and Above Income Limit 17%Older than 70 ½

2%*Covered by a qualified employer-sponsored plan.Source: Matched File of Income Tax Returns, Forms 5498, and 1099-R for Tax-Year 2001 (see Sailer & Holden (August 2004))

26

IRA IRA Contribution DecisionContribution Decision

IRA IRA Contribution DecisionContribution Decision

36%

30%33%

41%

• IRA Contributions at “Corner” Points Among those making contributions to IRAs, more

than half contributed at the limit (through 2001).

• EGTRRA Catch-Up Contributions Percentage of Contributing IRA Owners Age 50 or

Older

Source: ICI Annual Owners Survey (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))

20022002 20022003 2003

Traditional IRA Roth IRA

27

Traditional IRAsTraditional IRAs(billions of dollars)

Traditional IRAsTraditional IRAs(billions of dollars)

p e

p=preliminarye=estimateSources: Investment Company Institute, U.S. Internal Revenue Service Statistics of Income Division and SOI Bulletin, various issues (see ICI (August 2005—Appendix))

10 10 12

200226

204

2,423 2,407 2,322

3,150

$0

$100

$200

$300

$400

$500

$600

1999 2000 2002 2004

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

$3,500

Market Value of AssetsRolloversContributions

28

IRA Owners’ Asset AllocationsIRA Owners’ Asset AllocationsIRA Owners’ Asset AllocationsIRA Owners’ Asset Allocations

• IRA asset allocation varies with age.

• In 2004, 46 percent of households with traditional IRAs had rollovers in their IRAs (ICI (February 2005)).

• IRA owners hold a variety of assets (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005)).

• Households with IRAs and 401(k) accounts are heavily invested in equities in both (see Copeland (January 2004)).

29

1%3%5%Other

100%100%100%

16%15%6%Mixed

31%28%15%CDs/Money Market Funds

20%11%4%Bonds

32%43%70%Stocks/Mutual Funds

70+60s20s

How Is Your IRA or Keogh Account Invested?

IRA Asset Allocation by Age of IRA Asset Allocation by Age of HouseholdHousehold

(percent of U.S. households)

Source: ICI tabulations of the Federal Reserve Board’s 2001 Survey of Consumer Finances

30

IRA Withdrawal ActivityIRA Withdrawal ActivityIRA Withdrawal ActivityIRA Withdrawal Activity

• IRAs Loans are not allowed Withdrawals permitted; often with penalty Withdrawals rarely taken

31

Few Households with IRAs Take Few Households with IRAs Take WithdrawalsWithdrawals**

Few Households with IRAs Take Few Households with IRAs Take WithdrawalsWithdrawals**

*Percent of households with traditional IRAs. Withdrawal activity in any given year on average between 1999 and 2003.Source: ICI Annual IRA Owners Surveys (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))

Made a Partial Withdrawal

13%

Made No Withdrawal

84% Withdrew All Money

3%

32

Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When Under Age 59Under Age 591,21,2

Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When Under Age 59Under Age 591,21,2

23%

20%

10%

9%

10%

10%

9%

10%

Other reason

Make a large purchase

Take a required minimum distribution

Buy a home

Pay for education

Reinvest outside IRAs

Pay for health care

Pay living expenses

1Percent of households taking traditional IRA withdrawals. Results pooled over 2000 through 2004 survey years covering withdrawal activity in 1999 to 2003.2Multiple responses.Source: ICI Annual IRA Owners Survey (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))

33

Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When 70 or Older70 or Older1,21,2

Reasons for IRA Withdrawals When Reasons for IRA Withdrawals When 70 or Older70 or Older1,21,2

5%

7%

5%

1%

2%

12%

72%

8%

Other reason

Buy a home

Pay for education

Make a large purchase

Reinvest outside IRAs

Pay living expenses

Pay for health care

Take a required minimum distribution

1Percent of households taking traditional IRA withdrawals.2 Multiple responses. Source: ICI Annual IRA Owners Survey (see Holden, Ireland, Leonard-Chambers, and Bogdan (February 2005))

34

AppendixAppendixAppendixAppendix

• Total Retirement Market• Participation Decision• 401(k) Asset Allocation• 401(k) Loans and Withdrawals• Job Change and Retirement

35

Total Retirement MarketTotal Retirement MarketTotal Retirement MarketTotal Retirement Market

Year-End 2004 Assets1 (billions of dollars)

IRAs 3,475Defined contribution plans2 3,228Private defined benefit plans 1,846State and local government plans 2,585Federal defined benefit plans3 1,024Annuities4 1,246

Total Retirement Market 13,404

1Components do not add to total because of rounding.2Includes private employer-sponsored defined contribution plans, 403(b) plans, and 457 plans.3Includes U.S. Treasury security holdings of the civil service retirement and disability fund, the military retirement fund, the judicial retirement funds, the Railroad Retirement Board, and the foreign service retirement and disability fund. Also includes securities held in the National Railroad Retirement Investment Trust and the Federal Employees Retirement System (FERS) Thrift Savings Plan (TSP). 4All fixed and variable annuity reserves at life insurance companies less annuities held by IRAs, 457 plans, 403(b) plans, and private pension funds. Sources: Investment Company Institute, Federal Reserve Board, National Association of Government Defined Contribution Administrators, American Council of Life Insurers, and Internal Revenue Service (see ICI (August 2005) and Flow of Funds Accounts, Z.1 Release (September 21, 2005))

36

Employer Changes that Could Employer Changes that Could Improve 401(k) Plan ParticipationImprove 401(k) Plan Participation1,21,2

Employer Changes that Could Employer Changes that Could Improve 401(k) Plan ParticipationImprove 401(k) Plan Participation1,21,2

55%

55%

55%

58%

71%

80%Provide or increase company match

Give respondent a raise

Increase the number of plan investmentoptions

Provide one-on-one investment advice andcounseling

Provide more information about the 401(k)plan and its features

Provide general information on investing

1Percent of 401(k) plan nonparticipants “very” or “somewhat” likely to enroll if each change is made.2Multiple responses included. Number of respondents varies.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity , Spring 2000

37

Most Common Types of EducationMost Common Types of Education11 Provided by Plan SponsorsProvided by Plan Sponsors22

Most Common Types of EducationMost Common Types of Education11 Provided by Plan SponsorsProvided by Plan Sponsors22

23%

24%

38%

39%

44%

54%

65%

Paycheck stuffers

Workshops

Seminars

Internet

Newsletters

Fund performance sheets

Enrollment kits

1Communication techniques used to accomplish primary education goal. Multiple responses included. For other types of education mentioned, see the report.2Percent of plans.Source: Profit Sharing/401(k) Council of America (PSCA), 48th Annual Survey of Profit Sharing and 401(k) Plans, Reflecting 2004 Plan Experience, 2005

38

Average Asset Allocation in 2004, by Average Asset Allocation in 2004, by Participant AgeParticipant Age11

Average Asset Allocation in 2004, by Average Asset Allocation in 2004, by Participant AgeParticipant Age11

5237

13

13

13

10

6

21

17 20

Participants in Their 20s Participants in Their 60s

Bond & Money &Other Funds

GICs & Other StableValue Funds

Balanced Funds

Company Stock

Equity Funds

73%

55%

1Percent of total assets. Components may not add to 100 percent because of rounding.2“Funds” include mutual funds, life insurance separate accounts, bank collective trusts, and any pool of assets primarily invested in the investment objective indicated.Source: Tabulations from the EBRI/ICI Participant-Directed Plan Data Collection Project (see Holden & VanDerhei (September 2005))

2

2

2

2

39

Percent of Assets Allocated to Equity Percent of Assets Allocated to Equity Funds Varies Widely Among 401(k) Funds Varies Widely Among 401(k)

ParticipantsParticipants1,21,2

Percent of Assets Allocated to Equity Percent of Assets Allocated to Equity Funds Varies Widely Among 401(k) Funds Varies Widely Among 401(k)

ParticipantsParticipants1,21,2

21%

32%

8%

11%

15%

14% >80 Percent

Zero

1 to 20 Percent

>20 to 40 Percent

>40 to 60 Percent

>60 to 80 Percent

1Asset allocation distribution of 401(k) participant account balance to equity funds, percent of participants, 2004.2Includes the 16.3 million participants in the year-end 2004 EBRI/ICI database. Components do not add to 100 percent because of rounding.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (September 2005))

40

Distribution of 401(k) Plans by Number Distribution of 401(k) Plans by Number of Investment Options Offeredof Investment Options Offered1,21,2

Distribution of 401(k) Plans by Number Distribution of 401(k) Plans by Number of Investment Options Offeredof Investment Options Offered1,21,2

5%

6%

9%

11%

14%

10%

45%

2 to 5 Options

11 or More Options

6 Options

7 Options8 Options

9 Options

10 Options

1Percent of plans.2Sample of about 23,500 plans with 1.4 million participants drawn from the year-end 2000 EBRI/ICI database. Median number of options offered is 10; average is 10.4. Median number of options chosen is 2; average is 2.5.Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (May 2001))

41

Distribution of Participants by Number of Distribution of Participants by Number of Investment Options Offered and ChosenInvestment Options Offered and Chosen1,21,2

Distribution of Participants by Number of Distribution of Participants by Number of Investment Options Offered and ChosenInvestment Options Offered and Chosen1,21,2

1Percent of participants in row. Row percentages may not add to 100 percent because of rounding.2Sample of about 23,500 plans with 1.4 million participants drawn from the year-end 2000 EBRI/ICI database. Source: Tabulations from the EBRI/ICI Participant-Directed Retirement Plan Data Collection Project (see Holden & VanDerhei (May 2001))

1 2 3 4 5 or more

2 to 4 64 27 7 2 -

5 33 34 21 10 2

6 26 35 24 13 2

7 24 29 26 14 8

8 to 10 21 32 25 15 7

11 or more 22 31 23 14 9

Total 23 31 24 14 8

Number Chosen by 401(k) Participant

Nu

mb

er

Off

ered

42

Reasons for Taking Most Recent Reasons for Taking Most Recent 401(k) Plan Loan401(k) Plan Loan1,21,2

Reasons for Taking Most Recent Reasons for Taking Most Recent 401(k) Plan Loan401(k) Plan Loan1,21,2

34%

4%

6%

16%

23%

28%

Something else

Pay for anemergency expense

Pay educationexpenses

Make a downpayment on a home

Buy a car or otherexpensive item

Pay everydayexpenses or bills

1Percent of 401(k) plan participants who have taken a loan from current plan.2Multiple respondents included.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity, Spring 2000

43

Reasons for 401(k) Hardship Reasons for 401(k) Hardship WithdrawalsWithdrawals1,21,2

Reasons for 401(k) Hardship Reasons for 401(k) Hardship WithdrawalsWithdrawals1,21,2

1Percent of 401(k) plan participants who have taken a hardship withdrawal from current plan.2Multiple responses.Source: Investment Company Institute, 401(k) Plan Participants: Characteristics, Contributions, and Account Activity , Spring 2000

7%

21%

28%

45%

Pay educationalexpenses

Pay bills or dailyexpenses

Pay for a medicalemergency

Pay for a home

44

Households’ Asset Allocation Households’ Asset Allocation Among Households with Both IRAs Among Households with Both IRAs

and 401(k)-Type Plansand 401(k)-Type Plans1,21,2

Households’ Asset Allocation Households’ Asset Allocation Among Households with Both IRAs Among Households with Both IRAs

and 401(k)-Type Plansand 401(k)-Type Plans1,21,2

Asset Class IRAs 401(k)-Type Plans

Mostly Stock 65.0% 61.1%Mostly Interest-Earning 20.8% 7.5%Split 13.5% 31.4%Other 0.7%

1Percentage of assets in account type indicated.2Some of the differences in asset type between the two account types is due to the differing format of the question asked across the two account types.Source: EBRI Tabulations of the 2001 Survey of Consumer Finances (see Copeland (January 2004))

45

Changing Jobs—Tenure Distribution Changing Jobs—Tenure Distribution of Workers Age 55 to 64* of Workers Age 55 to 64*

Changing Jobs—Tenure Distribution Changing Jobs—Tenure Distribution of Workers Age 55 to 64* of Workers Age 55 to 64*

18%

13%

19%

25%26%

2 or Fewer 3 to 4 5 to 9 10 to 19 20 or More

Years of Tenure with Current Employer

*Percent of workers; percentages do not add to 100 percent because of rounding.Source: U.S. Department of Labor, Bureau of Labor Statistics, Employee Tenure in 2004, September 21, 2004

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Workers’ Behavior at Job Change—Workers’ Behavior at Job Change—Rollover of Entire BalanceRollover of Entire Balance**


39%

51%

61%

Less than $40,000 $40,000 to $49,999 $50,000 or More

Current Annual Income

*Percent of workers receiving lump-sum distributions.Source: ICI Tabulations of Survey of Income and Program Participation (SIPP) 2001 Panel, Pension Module; Data for 2003

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22%

37%

44%

54%

61%

79%85%

$999 orless

$1,000 to$4,999

$5,000 to$9,999

$10,000 to$19,999

$20,000 to$49,999

$50,000 to$99,999

$100,000 ormore


Size of Lump-Sum Distribution

48



32%

44%

55%59%

77%

20s 30s 40s 50s 61 to 64

Age at Time of Distribution


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Defined Contribution Plan Defined Contribution Plan Distribution Decision at Distribution Decision at

RetirementRetirement11

Defined Contribution Plan Defined Contribution Plan Distribution Decision at Distribution Decision at

RetirementRetirement11

47%

26%23%

10%

Lump-SumDistribution

Deferral ofDistribution

Annuity InstallmentPayments

Distribution Options Selected at Retirement by Retirees Having More than One Option2

1Individuals retired from a defined contribution plan between 1995 and 2000. Multiple responses included. Data as of May 2000.2Percent of respondents who had multiple options.Source: Investment Company Institute, “Financial Decisions at Retirement,” ICI Fundamentals, November 2000

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