Katie Benner
A sweep of the president's hand could result in a major financial boost for the mutual fund industry, thanks to the pension reform bill that made it through the House and the Senate last week.
Broadly, the massive piece of legislation shores up the nation's ailing pension system by giving most employers seven years to fully fund their defined-benefit plans, which cover about 44 million workers. The good news for asset managers like T. Rowe Price(TROW Quote - Cramer on TROW - Stock Picks), AllianceBernstein(AB Quote - Cramer on AB - Stock Picks), Fidelity and Vanguard is that it also encourages participation in so-called defined-contribution plans like 401(k)s and IRAs. The Pension Protection Act paves the way for employers to automatically enroll employees in defined-contribution plans, increase their contribution levels each year and offer default investment options with higher returns. It also raises annual contribution ceilings for 401(k)s and IRAs. Weeks before the bill passed the Senate, AllianceBernstein Chairman and Chief Executive Lou Sanders told investors during the company's earnings conference call, "Automatic enrollment will be adopted and stimulate inflows to [our retirement plans]... It makes building a presence in the defined-contribution market a strategic imperative." With potentially huge amounts of money on the table, it's difficult to argue with this strategy. The Employee Benefit Research Institute says 92% of eligible employees participate in 401(k) plans when they are automatically enrolled, compared with 66% who participate prior to automatic enrollments. At current participation rates, 401(k) contributions amounted to $2.1 trillion in assets at the end of 2004, according to the EBRI. The mutual fund industry manages in total more than $9 trillion in assets.
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