The Revolution in Retirement Plans

Matthew P. Fink

in The Rise of Mutual Funds

Second edition

Published in print January 2011 | ISBN: 9780199753505
Published online January 2012 | e-ISBN: 9780199918805 | DOI:
The Revolution in Retirement Plans

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Today it is quite natural to associate mutual funds with retirement plans. After all, mutual funds are the largest funding medium for 401(k) and other defined contribution plans as well as for individual retirement accounts (IRAs). Mutual funds constitute one quarter of all U.S. retirement plan assets. The close association between mutual funds and retirement plans is a relatively new phenomenon. For many years, the corporate retirement market was dominated by defined benefit plans, which did not invest to any significant degree in mutual fund shares. Management of the smaller universe of defined contribution plans was dominated by banks and insurance companies, which did not make use of mutual funds. The revolution in retirement plans began quietly in 1962 when Congress permitted self-employed individuals to establish retirement plans. It accelerated with the enactment of the Employee Retirement Income Security Act of 1974, which created the first IRAs, and took a quantum leap forward in 1981 when Congress permitted all workers to have IRAs and the Internal Revenue Service adopted regulations laying the groundwork for 401(k) plans.

Keywords: mutual funds; retirement plants; defined benefit plans; individual retirement accounts; Employee Retirement Income Security Act

Chapter.  6912 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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