Have Participants Missed the Recovery?
Plan participants who bailed out of stocks during the recession haven’t been quick to jump back in. Nor does it seem new participants are investing as heavily in stocks as their 2006 counterparts did. At the end of 2012, the percentage of defined contribution plan assets invested in mutual funds holding equities remained eight points lower than in 2006.*
After hitting a low in February 2009, the U.S. stock market, as measured by the S&P 500 index, posted a cumulative return of 94% through year-end 2012. By March 2013, it had recouped its recession losses and then some. Missing this growth could make it more difficult for many participants to accumulate the amount they’ll need for a comfortable retirement.
What can plan sponsors do? Make sure participants understand the importance of having a portfolio diversified according to their risk tolerance and retirement investment time frame (see the following article on targeted communications). Also review your investment lineup. Do you offer sufficient stock funds to meet the needs of all your employees? How about lifecycle/lifestyle/target date funds with higher stock allocations appropriate for younger participants? These funds now represent the second-most-popular retirement savings account allocation after U.S. large-cap stock funds.
|Asset Class||% of Defined Contribution Plan Assets Invested Each Year|
|U.S. Stock Funds||57||53||44||45||45||43||43|
|World Stock Funds||15||17||13||14||14||13||13|
|Hybrid Funds (mix of stock and fixed income investments)||15||16||18||20||21||22||23|
* Source: Investment Company Institute, The U.S. Retirement Market, 2012
Missing this growth could make it more difficult for many participants to accumulate the amount they’ll need for a comfortable retirement.