At the 2009 SPARK national conference, retirement plan advisers and experts gathered in Washington, D.C., to reflect on how defined contribution plans are holding up in a tough economy and against criticism that 401(k)s are ineffective retirement savings vehicles.

Sponsored by the Society of Professional Asset-Managers and Record Keepers, the event provided a glimpse into some economic and regulatory forces shaping the retirement plan market.

By mid-2009, research by SPARK showed that the retirement plan market held about $13.2 in trillion assets, with $4.5 trillion in individual retirement accounts, $4.3 trillion in employer-based defined benefit plans and $4.2 trillion in employer-based defined contribution plans.

After fairly significant declines in 2008, the retirement plan market did show some positive growth during the first six months of 2009, said Bob Wuelfing, president of SPARK. "Our projections show that the total retirement plan market grew about 4.3%."

The largest growth appeared in the IRA market, which grew by 6% and represents about 30% of the retirement plan market, outpacing the DC plan market. Wuelfing explained that 401(k) rollovers are funding the growth in IRA accounts.

Despite the mid-2009 numbers, the extreme market volatility of 2008 did diminish retirement plan asset levels. By the end of 2008, retirement plan assets totaled $12.6 trillion, down by 19% from the record levels in 2007, according to SPARK. DC plan assets dropped 18% to $8.4 trillion from $10.2 trillion in 2007. Total assets in DC plans in the public sector declined almost 19% to $545 billion.

The good news is that the total of 401(k) plans on the market increased by more than 20,000 in 2008 and over five million participants were added, an increase of 7.6%.

Wuelfing noted that the uptick in participants can be attributed, in part, to more employers using automatic enrollment and other auto features with their 401(k) plans.

Studying participants

Dr. Sarah Holden, senior director of retirement and investor research at the Investment Company Institute, told attendees that 70% of U.S. households have an IRA account and/or employer-sponsored retirement plans.

ICI 2008 data show that nearly 32% of households have an IRA and an employer-sponsored retirement plan, 29% have only an employer-sponsored retirement plan, and 9% have only an IRA. The research, which involved 116.8 million U.S. households, reveals that 30% of American households did not have an IRA or an employer-sponsored retirement plan.

Holden also explained that the population does not dramatically decline after the baby boom generation. "Although the boomers are a big part of our population, plan sponsors and services providers shouldn't lose sight of younger generations coming behind the boomers," she said. "There is an echo boom."

While plan sponsors and services providers are focusing on servicing older individuals by addressing distribution issues, they also have to realize that Gen X and Y workers are entering into their prime savings stages, she noted.

Newly retired employees had no qualms about tapping into workplace resources to help them make decisions about reinvesting DC funds into other savings vehicles. Employers that are plan sponsors play an instrumental role in the process of workers researching options to reinvest DC funds. A trend, however, that "concerns some plan services providers," Holden observed.

Holden offered up 2008 analysis showing that 46% of retirees tapped into resources provided by their employers, with 13% selecting a professional financial advisor through the workplace. Still, the 13% figure, which is low, probably reflects employers' reluctance to offer the option because of fiduciary concerns, Holden said.

ICI's research, which involved 608 households, shows that 18% of retirees annualized the entire DC plan balance, while 34% took the lump sum and reinvested the funds into other savings vehicles.

Sample language for 403(b)s

SPARK also found that assets in 403(b) plans declined in 2008. For instance, assets totaled $610 billion at year end 2008, 16% less than reported in 2007.

The plans, however, tend to lean toward fixed-income and stable-value accounts, which represent about 40% of the portfolio. Educational institutions, such as colleges and universities, remain the big players in the market, holding nearly 50% of 403(b) assets.

Final regulations applying to 403(b) plans went into effect Jan. 1. The Internal Revenue Service enforces the regulations. Robert J. Architect, senior tax law specialist at the IRS, told attendees that the agency hopes to bring the 403(b) plan into the modern world.

For many years, the agency received requests from industry groups and retirement plan professionals to offer draft procedures for establishing a 403(b) prototype plan program, Architect said.

Retirement benefits practitioners argued that draft language issued by the agency will not only promote compliance, but also ensure that plan professionals were on the right track in structuring 403(b) plans that complied with federal regulations. The IRS took note of the requests and, in April 2009, the agency issued draft language regarding 403(b) plans.

"Plan service providers who are working with organizations to structure a written plan can now visit the IRS's Web site to access draft sample plan language for 403(b) plans, Architect said. "It's draft language, but feel free to use it; especially if you are trying to construct a 403(b) plan to meet the deadline of Dec. 30, 2009."