Study says economic downturn cut median retirement
account balances by at least 15%
In its study, "Individual Account Retirement Plans: An Analysis of the 2007 Survey of Consumer Finances, With Market Adjustments to June 2009," the Employee Benefit Research Institute (EBRI) found that median asset levels in defined contribution and IRA/Keogh plans dropped at least 15% from year-end 2007 to mid-June 2009, reflecting the significant downturn in the economy. Note that the 15% drop is net of new money contributed to these plans. Therefore, investment performance was actually much worse.
Underlying data. The study was based on the 2007 Survey of Consumer Finances (SCF), the Federal Reserve Board's triennial survey of wealth, adjusted by EBRI to account for the economic downturn in 2008. The study also assessed the current status of Americans' savings for retirement by examining the incidence of individual account plans among families, as well as the average amount of assets accumulated in these accounts. Highlights of the study follow.
Defined contribution plans. Among all families with a defined contribution plan in 2007, the median plan balance was $31,800, up 16% from 2004. According to EBRI estimates, this dropped 16.4% (to $26,578) from year-end 2007 to mid-June 2009. Losses were higher for families with more than $100,000 a year in income (down 22%) or having a net worth in the top 10% (down 28%).
IRA/Keogh plans. Among all families with an IRA/Keogh plan, the median value of their plan was $34,000 in 2007, up 3% from 2004. EBRI estimated that this median value dropped 15% (to $28,955) from year-end 2007 to mid-June 2009.
Employment-based plans. In 2007, 40.6% of families included a participant in an employment-based retirement plan (either a defined benefit or defined contribution plan) from a current job. This was up from 38.8% in 1992, but virtually unchanged from 40.3% in 2004.
Shifts in plan types. A significant shift in the plan type occurred from 1992 to 2007, with the percentage of families with a plan having only a defined benefit plan decreasing from 40% to 17.4%. The share of families participating in only a defined contribution plan had the opposite trend, rising from 37.5% in 1992 to 60.3% in 2007. The percentage of families with both types of plans was unchanged from 1992 to 2007 at 23%.
Other findings. In addition to the foregoing items, the study found that:
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Ownership of an IRA increased with family income, the family head's educational level, and the family's net worth. In 2007, 66.2% of families had a participant in a current or previous employer's retirement plan or an IRA/Keogh, up slightly from 2004 (65.4%).
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The percentage of families that owned either an individual retirement account or a Keogh plan increased in 2007 to 30.6% from 29.1% in 2004.
About the Writer
Desmond G. Sheridan is a partner in the Greensboro law firm of Isaacson Isaacson Sheridan & Fountain, LLP and is a certified public accountant. His practice areas are business transactions, tax, corporations, limited liability companies, commercial real estate and estate planning. Sheridan has served on the Board of Directors of the North Carolina Association of Certified Public Accountants and has been recognized as a "Best Lawyer in America," a North Carolina "Super Lawyer" and a member of the "Legal Elite" by Business North Carolina. He has given numerous continuing education presentations to CPAs and attorneys.
