WASHINGTON - Defined contribution plans increased their mutual fund investments by 46% in 1993 to $186 billion as of Dec. 31, vs. $127 billion in 1992, according to annual pension statistics compiled by the Investment Co. Institute.
Of the defined contribution total, $110 billion was 401(k) assets, a rise of 80% from 1992's $61 billion.
The 1993 numbers include 485,435 defined contribution plans, of which 51,837 are 401(k) plans. The 1992 figures reflect 316,953 defined contribution plans, of which only 18,689 were 401(k) plans.
Estimates for the various categories of retirement assets are based on responses from 105 fund complexes covering 83.71% of industry assets vs. responses from 92 complexes covering 77.74% of total industry assets in 1992. The survey collected data on a complex-by-complex basis - as opposed to fund by fund - and attempted to include pension assets held in accounts under "street names."
Defined benefit plan investments in mutual funds also increased, but to a lesser degree. Assets rose 15% to $4.6 billion in 1993 from $4 billion in 1992.
Among other tax-exempt funds, 403(b) assets invested in mutual funds rose 50% to $21 billion from $14 billion.
Mutual fund assets from 457, or deferred compensation, plans more than tripled - to nearly $10 billion from almost $3 billion a year earlier.
The ICI survey reflects how a growing cross-section of the defined contribution market invests in mutual funds.
"We're seeing fairly rapid growth in the mutual fund area. Mutual fund companies experienced the fastest growth in investments from 401(k)s in the past five years - the only investment group that's gained market share," said Jeffrey Close, director of communications for Access Research Inc., a Windsor, Conn., consulting firm.
Mr. Close noted that in 1988, mutual funds accounted for 14% of 401(k) assets. Over the same period, insurance companies lost market share while banks, after losing, saw their market share stabilize in 1993, he said.
Mutual funds are gaining assets as guaranteed investment contracts have waned in popularity among plan participants in recent years. In plans where a guaranteed option is offered, it typically attracts 50% to 55% of all participant-directed assets, down from 65% to 70% three years ago, according to Access.
"A combination of attractive returns in equity funds, declining GIC yields and participant education programs have caused a shift out of traditional guaranteed funds to alternative 'stable asset value' funds and to equities," a study by Access said.
Mutual funds often are the vehicle of choice for equities.
According to the Access study, corporate defined contribution plans had $885 billion in assets as of Dec. 31, 1993. At first glance, the percentage invested in mutual funds by defined contribution plans - 21% - looks modest, when comparing ICI's figure of $186 billion to Access' $885 billion total.
But the percentage is higher if one looks at investments by 401(k) plans - the largest defined contribution plan investors in mutual funds, with total assets of $475 billion. More than 50% of 401(k) assets were invested in company stock and GICs or stable value funds, leaving about $235 billion that potentially could be invested in mutual funds, according to Access. ICI's estimate of $110 billion of mutual investments by 401(k)s out of $235 billion is 50% - "a fairly sizable number, I think," Mr. Close said.
Access places the percentage of 401(k)s invested in mutual funds as of Dec. 31 at 26%, but that figure might be conservative because it counted investments through banks and insurance companies separately, even though many of those firms offer their own mutual funds, he said.
In addition to defined contribution plans, the ICI report also included figures on individual retirement accounts. The total IRA assets invested in mutual funds swelled to $342 billion in 1993, a 47% increase from $232 billion in 1992.