Baseball, hot dogs, apple pie and Fidelity 401k plans. You can’t get more American than that.
But what is it that makes Fidelity Investments a leader in retirement plans in the U.S.?
In simple terms, the combination of 401k and IRA assets, plus its 401k plan record keeping services, makes Fidelity the biggest financial firm for retirement plans in the country today.
But before we go any deeper, let’s take a look at how 401k plans have evolved and what makes Fidelity such a big player in the retirement planning industry.
A Brief History of 401k Plans
401k plans are named for the section of Internal Revenue Code code — 401k — that made them possible through a provision in the Revenue Act of 1978, which became law in 1980. They’re tax-qualified (essentially, they have tax benefits) and have defined contributions (you, your employer or a combination of both make regular contributions).
In the early 1980s, a few large corporations — including Johnson & Johnson (JNJ), PepsiCo (PEP), and Honeywell (HON) — began offering 401k plans to their employees. Growth and subsequent revisions to tax code ensued and by the late ’90s, there were more than 300,000 401k plans with over 37 million active participants holding more than $1.5 trillion in assets, according to the Employee Benefits Institute.
Fast-forward to today — or at least through Q3 2015 — and there is $6.5 trillion in defined contribution plans, the majority of which are 401k plans, according to Investment Company Institute.
How Fidelity 401k Plans Tapped Into Retirement Industry
Employer-sponsored retirement plans have shifted from traditional pension plans, where the contributions and investments were directed by employer-appointed trustees and advisors, to 401k plans, which enable employee discretion over deferral amounts and investment selection.
So naturally, firms like Fidelity Investments were, and still are, a natural fit for the evolving retirement planning industry.
Faced with the fiduciary responsibility of shifting the investment decisions to the employees, employers needed to offer a diverse but simple selection of investment offerings for employees to choose. The best investment security type for this task is mutual funds.
Having already tapped into the popularity of mutual funds with the biggest fund in the 1980s, Fidelity Magellan (FMAGX), and with expanding assets in their IRAs in the ’90s with funds like Fidelity Contrafund (FCNTX) and Fidelity Spartan 500 Index (FUSEX), Fidelity grew its retirement planning business alongside the growing 401k plan industry.
Fidelity Investments was also an early player in the target-date fund market with one of the first of such funds, Fidelity Freedom 2010 Fund (FFFCX), opening to investors in October 1996.
Where are we today?
Well, a few data points from Fidelity corporate statistics (through Sept. 30, 2015) help tell the tale:
- The nation’s No. 1 record keeper of 401k plans
- $2.9 trillion in retirement assets under administration
- $1.4 trillion in retirement assets
- $1.7 trillion in mutual fund assets
- 24 million people investing with Fidelity
- 20,000 businesses using Fidelity’s employer benefits service
- 575 mutual funds managed
Although Vanguard recently surpassed Fidelity for the lead in retirement assets held, Fidelity 401k plans still hold the lead for total of assets plus administration services, such as record keeping. Therefore, Fidelity offers the entire package for corporations and small-business owners in their 401k plan needs.
And with the combination of outstanding actively managed funds, target-date retirement funds, and low-cost index funds, Fidelity Investments is sure to remain a leader in the retirement planning industry for a long, long time.
As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. However he holds FCNTX and FUSEX in some client accounts. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.