Defined contribution plan assets in the U.S. grew at a faster rate than total U.S. retirement assets during the first three months of 2023, according to just-released data tables from the Investment Company Institute.
U.S. defined contribution (DC) plan assets increased 5% during the first quarter of 2023, totaling $9.8 trillion, while total U.S. retirement assets were $35.4 trillion as of March 31, 2023, up 3.5% from December 31, 2022. Retirement assets accounted for 31% of all household financial assets in the country at the end of March 2023.
The gains were buoyed by improved market performance after a dismal 2022. The S&P 500 increased by just over 7% during the first quarter of 2023. While the Dow Jones Industrial Average only gained 0.4% in Q1, the tech-heavy NASDAQ made a remarkable resurgence, soaring nearly 17% for its best quarterly gain since the fourth quarter of 2020.
Trillions of dollars, end-of-period, selected periods. e: Data are estimated. Note: For definitions of plan categories, see Table 1 in “The US Retirement Market, First Quarter 2023.” Components may not add to the total because of rounding. Sources: Investment Company Institute, Federal Reserve Board, Department of Labor, National Association of Government Defined Contribution Administrators, American Council of Life Insurers, and Internal Revenue Service Statistics of Income Division.
Defined Contribution Plans
ICI’s total retirement market estimates show that of the $9.8 trillion held by Americans in all employer-based DC retirement plans on March 31, 2023, $6.9 trillion was held in 401(k) plans specifically.
In addition to 401(k) plans, at the end of the first quarter, $560 billion was held in other private-sector DC plans, $1.2 trillion in 403(b) plans, $405 billion in 457 plans, and $759 billion in the Federal Employees Retirement System’s Thrift Savings Plan (TSP). Mutual funds managed $4.3 trillion, or 62%, of assets held in 401(k) plans at the end of March 2023. With $2.5 trillion, equity funds were the most common type of funds held in 401(k) plans, followed by $1.2 trillion in hybrid funds, which include target date funds.
Individual Retirement Accounts
IRAs held $12.5 trillion in assets at the end of the first quarter of 2023, an increase of 4.3% from the end of 2022. Forty-two percent of IRA assets, or $5.2 trillion, was invested in mutual funds. With $2.9 trillion, equity funds were the most common type of funds held in IRAs, followed by $1.0 trillion in hybrid funds.
Other developments
Government defined benefit (DB) plans—including federal, state, and local government plans—held $7.7 trillion in assets as of the end of March 2023, a 0.5% increase from the end of December 2022. Private-sector DB plans held $3.2 trillion in assets at the end of the first quarter of 2023, and annuity reserves outside of retirement accounts accounted for another $2.2 trillion.
Retirement entitlements include both retirement assets and the unfunded liabilities of DB plans. Under a DB plan, employees accrue benefits to which they are legally entitled and which represent assets to U.S. households and liabilities to plans. To the extent that pension plan assets are insufficient to cover accrued benefit entitlements, a DB pension plan has a claim on the plan sponsor.
As of March 31, 2023, total U.S. retirement entitlements were $41.8 trillion, including $35.4 trillion of retirement assets and another $6.4 trillion of unfunded liabilities. Including both retirement assets and unfunded liabilities, retirement entitlements accounted for 37% of the financial assets of all U.S. households at the end of March.
Unfunded liabilities are a larger issue for government DB plans than for private-sector DB plans. As of the end of the first quarter of 2023, unfunded liabilities were 45% of benefit entitlements for state and local government DB plans, 37% of benefit entitlements for federal government DB plans, and 14% of benefit entitlements for private-sector DB plans.
The quarterly retirement data tables are available at “The US Retirement Market, First Quarter 2023.”
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