Report Finds Near Zero Growth in Nation's 401k Plans Last Year; Stock Market Takes Toll On High Percentage of Investments in Equities.

Business Editors

DENVER--(BUSINESS WIRE)--April 26, 2001

Combined investment growth for the nation's 401(k) plans was nearly unchanged last year compared to 1999, with most of the $2 billion increase to $1.7 trillion due to participant contributions and employer matching funds, according to a national survey released today.

The results were largely due to the stock market's downturn last year, as the preponderance (44 percent) of assets in 401(k) plans are in equities, according to a report by the Spectrem Group on behalf of the National Defined Contribution Council.

For all types of retirement plans, assets decreased 3 percent to $8.2 trillion, according to the survey.

The survey, which focused mainly on 401(k) plans, said 2.4 million plan participants were added to the 401(k) market, bringing the total number of employees holding them to 37.1 million.

The average account balance was $49,160, up from $31,700 in 1994. However, the survey found most participants have at least one other savings vehicle, primarily an IRA.

Lou Valentino, president of the NDCC, said that while the amount shows dramatic growth in individual savings over the past several years, it is not nearly enough given the late start for many and the anticipated increase in life expectancies.

"American workers still don't save enough, mainly because they need more ways to save and the right to put more money into retirement. We are very hopeful that with the new administration in Washington and some new leadership in the Congress that there will be action on such items as the Portman/Cardin bill," said Valentino.

The NDCC is strongly supporting the Portman/Cardin bill. The bill would increase contribution limits, make pension savings more portable and permit "catch-up" savings for older workers. The group also supports changes in Social Security, including the ability for working Americans to invest part of their Social Security taxes into a defined contribution account, such as a 401(k) or Simple IRA.

"We have to continue to find ways to help workers increase their savings," said Valentino.

The survey found the average number of investments offered to 401(k) holders increased to an average of 9.1 investment vehicles per plan, a doubling since 1994. But the number of investment options actually chosen by the participants was only 3.4, a number that has changed little over the past eight years.

"We think this trend toward few selections might indicate the need for more advice in designing investment diversification strategies," said Valentino.

The NDCC is urging changes in the 26-year-old ERISA regulations that govern retirement plans, including a rescinding of an interpretation of ERISA by the Department of Labor that investment advice is a prohibited transaction.

The survey also found that 16.1 percent of participants use the Internet as a source for their investment decisions, up from 14 percent in 1999 and 1.8 percent in 1994. The number of plan participants who obtained information about savings and investments through the Internet in the last six months of last year jumped to a whopping 28.3 percent of those surveyed.

Among Web sites of non-financial service providers used, Morningstar led the field with 11.7 percent of participants, followed by Yahoo, 6 percent, CNN, 3.3 percent, and the Motley Fool, 3.3 percent.

Among other findings:

-- Asset distribution in equities remained at 44 percent throughout the year,
the same as in 1999. Other asset distributions included company stock, down 1
percent to 18 percent of all holdings; balanced asset allocation, up 1 percent
to 13 percent over the previous year; bonds, up 1 percent to 7 percent;
guaranteed/stable value funds, down 1 percent to 13 percent; money market
allocations remaining at 3 percent and all other investments holding at 2
percent.

-- Only 23 percent of companies with under 100 employees offer a 401(k) plan,
as compared to 49 percent with those between 100 and 500 employees and more
than 90 percent with those over 1,000 employees.

-- Mutual fund providers manage 49 percent of all 401(k) assets, as compared to
22 percent by banks, 16 percent by insurance companies and 13 percent either
in-house or otherwise.

-- The rate of contribution to 401(k)s has steadily increased from 6.9 percent
in 1994 to 8.4 percent last year. "This increase in the rate of contributions
reflects favorably on the efforts of both plan sponsors and providers. The
private pension system can and does work," said Valentino.

-- Assets in defined benefits plans, in which investments are controlled by a
business or organization, dropped 6 percent as plan sponsors replaced defined
benefits plans with defined contribution plans such as 401(k)s, by which
individuals control their own investments.

-- The number of 401(k) plan sponsors grew from 153,000 in 1990 to 377,000 in
2000 and is projected to grow to 481,000 by 2005, with the growth largely among
small and mid-size businesses.

The data for the NDCC report were drawn from ongoing surveys of plan sponsors and plan participants that include about 800 plan sponsors and 1,000 participants.

About NDCC

The National Defined Contribution Council is made up of executives from more than 70 of the largest retirement services corporations in the United States who manage about 90 percent of all assets in 401(k) plans. The NDCC is primarily involved in government relations and education on behalf of defined contribution plan providers, sponsors and participants. The NDCC is based in Denver. For more information, visit the organization's Web site at www.ndcconline.org.

About Spectrem Group

Spectrem is an information, strategic consulting and mergers-and-acquisition advisory firm specializing in the investment services industry. Spectrem's unique management and technical skills meet the needs of retail and institutional providers of investment and trust services. Clients include many of the world's largest mutual funds, brokerages, banks and insurance companies. Spectrem Group is headquartered in Chicago. For more information, visit the company Web site at www.spectrem.com.