$460B in DC Plan Assets Could Take Wing

After years of extremely low turnover, retirement plan sponsors are giving serious consideration to altering their 401(k) plan recordkeeping relationships, a report says.

It’s review time, and with current assets in 401(k) plans estimated at $4.4 trillion by the Investment Company Institute (ICI), assets controlled by plan sponsors planning a move represents a $460 billion opportunity for providers that can effectively differentiate themselves in an increasingly commoditized marketplace.

Cogent’s Retirement Planscape report indicates that four in 10 (40%) plan sponsors are very likely to initiate a formal review of their plan over the next year. Meanwhile, 11% of all plan sponsors are already planning to switch providers during the same period.

“We know that plan sponsors typically conduct at least a cursory review of their plan every two years or so to meet their fiduciary responsibilities,” explains Linda York, vice president of the syndicated research division at Market Strategies at Cogent and lead author of the report. “However, this year we are surprised to see four in 10 sponsors overall initiating a formal plan review, with an even higher proportion of reviews expected among larger plans.”

Nearly half (46%) of all mega-plan sponsors (those with $500+ million in plan assets) anticipate a formal plan review and 18% feel these reviews will trigger the need to move to a different provider, the report found. Comparatively, 40% of plan sponsors in the micro-plan segment (those with less than $5 million in plan assets) intend to conduct a formal review and just 14% within this segment anticipate actually switching.

As sponsors begin their review process, they are open to considering many more providers this year than in the past, York points out. “This is a red flag for incumbent DC recordkeepers that may find themselves under increased scrutiny,” she says. “At the same time, this is also an opportunity for new providers to make their move to capture new assets and more market share.”

The full report, first conducted in 2010, evaluates the competitive position of 39 plan providers on a variety of metrics, identifying the leaders in overall brand equity in the best position to capitalize on this future growth potential.

Fidelity Investments, Vanguard and Charles Schwab, the three top placeholders, still have a near lock on overall brand equity, according to the report, but several key challenger brands—Principal Financial Group, John Hancock Financial Services and T. Rowe Price—have moved into fourth, fifth and sixth places, respectively. “They are exhibiting strong positive momentum and are closing the gap with market leaders,” York says. Principal moved from fifth to fourth place; John Hancock notched up from sixth to fifth, and T. Rowe Price moved to sixth from 11th place.  

Cogent Reports conducted an online survey of a representative cross section of 1,471 401(k) plan sponsors from July 22 through September 2. Survey participants were required to have shared or sole responsibility for plan design, administration, or selection and evaluation of plan providers.

More information about annual Retirement Planscape, a Cogent Reports study by Market Strategies International, is at Cogent’s website.