Today’s edition of the Wall Street Journal has an article worth reading by Ian McDonald: “Mutual Funds Grateful for Automatic Pilots.” The article discusses the impact 401(k) automatic deferrals had on the mutual fund industry last year. Normally investments coming from tax-deferred retirement plans, like a 401(k) or 457 plan, represent only 15% to 20% of money that has flowed into stock, bond and money market mutual funds. Last year, due to the downturn in stocks, investments from such accounts now represent a “full 85% of all net buying of mutual funds in 2002.” That’s because stock funds suffered “$54 billion in net outflows from nonretirement accounts” according to the article which discusses a report from the Investment Company Institute, the fund industry’s largest trade group. What is driving the numbers, according to the article, is the automatic payroll deduction. The article reports Chris Brown, a retirement product analyst with Boston fund consultant Financial Research Corporation, as saying that without automatic deductions “there’s just no way people would write a check every week or two in a bear market.”
A very important factor to consider in the whole analysis would be the impact that company matching had on the continued influx of such deferrals during the bear market. Did participants for the most part continue their deferrals during the bear market in plans where there was no company match?