Certified Public Accountants | Business Advisors

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
  2006 2007 2008 2009 2010 2011 2012
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
Bonds 9 9 13 13 14 15 16
Money Market 5 6 12 8 6 6 5

* 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.

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