401(k) contributions lead retirement asset growth in the U.S.

Published 8:02 pm Friday, May 9, 2008

NEW YORK — The retirement assets of Americans grew 7 percent to $17.6 trillion last year, with the strongest growth coming from worker contributions to 401(k) accounts and other company-sponsored plans and to Individual Retirement Accounts.

The Investment Company Institute, a Washington, D.C.-based trade association, said Americans held $4.5 trillion in defined contribution plans like 401(k)s at year’s end and $4.7 trillion in IRAs. The balance was $8.4 trillion in traditional pension plans, government employee plans and annuities, the ICI said.

In 2006, retirement assets grew 11 percent to $16.5 trillion. Of the total, $4.1 trillion was in defined contribution plans and $4.2 trillion in IRAs.

Brian Reid, the ICI’s chief economist, said that the slower growth last year compared with the year before mainly reflected weaker markets. The Standard &Poor’s 500 index advanced just 3.5 percent in 2007 compared with 16 percent in 2006.

“In fact, we saw more money coming into mutual funds from retirement accounts in 2007 than in 2006,” he said.

Reid also said he was impressed that the $1.1 trillion growth in retirement assets last year represented about half of the total growth in household wealth in the year, according to Federal Reserve figures.

“Retirement now is accounting for a larger portion of the year-over-year growth in household wealth,” Reid said. “And most of that is because of DC (defined contribution) plans and IRAs.”

The ICI said that mutual funds managed $4.6 trillion of retirement assets last year, or about a quarter of the total. The rest were managed by pension funds, insurance companies and brokerage firms.

The data also indicated that an increasing number of Americans are choosing to invest in lifestyle and lifecycle funds. Net new cash into these funds rose to a record $92 billion last year.