Holding more than one type of plan leads to higher equity allocations, EBRI finds

People who own more than one type of retirement plan are more likely to invest a higher percentage in equities than those who don’t, according to new research by the Employee Benefit Research Institute (EBRI). The research was based on data from the Federal Reserve.

The EBRI found that individuals who own an individual retirement account (IRA) are more likely to be invested all in stocks if they also have a 401(k)-type of plan. Those who participate in both a defined benefit (DB) pension plan and a 401(k)-type plan were less likely to allocate the latter to all interest-earning assets, such as bonds, meaning they also will invest more in stocks, the study found.

“Due to the increased participation in defined contribution retirement plans like the 401(k), the manner in which participants allocate assets within these plans could have a significant effect upon the financial resources they ultimately will have available in retirement,” said Craig Copeland, EBRI research associate and author of the study.

The study also found that:

• As family-head IRA owners’ ages increased, the likelihood that they were invested all in stocks decreased.

• As the educational attainment of the family head increased, the likelihood that IRA participants were invested all in interest-earning assets decreased.

• If the family head had more than 75% of the assets in his or her 401(k)-type plan and the IRA assets included rollover assets, the investment in the IRA was more likely to have a higher stock allocation.

• For family heads with a relatively low (25% or less) investment in stocks in their 401(k)-type plan, the presence of a rollover also led to a higher likelihood of their IRA being invested more in stocks that was the case when there was no rollover.

• Higher income and net worth were correlated with more investment in stocks.

The EBRI also found that the likelihood of a working family head participating in a retirement plan increased with the size of his or her employer. In 2010, among family heads working for employers with 10–19 employees, 22.4% participated in a plan, compared with 67.2% of family heads who worked for employers with 500 or more employees.

In addition, the data show that in 2010, 18.9% of family heads who participated in an employment-based retirement plan had a DB plan only, while 65% had a defined contribution (DC) plan only, and the remaining 16.1% had both a DB and a DC plan. This was a significant change from 1992, when 42.3% had a DB plan only, and 40.8% had a DC plan only.

Source: EBRI press release PR 1024, April 25, 2013.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer’s Benefits Reports.

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