Research by Judy Diamond Associates shows a “staggering concentration of responsibility” in a handful of plans, relatively speaking. By the end of the fourth quarter of 2013, approximately 500,000 active 401(k) plans had a collective $3.5 trillion in total assets.

Nearly three-quarters of this pool, or $2.54 trillion, was controlled by the top 1%: just 5,000 companies. In contrast, the other 99% (495,000 companies) of all 401(k) plans nationwide control only 29% of the total assets.

“This concentration of assets among such a small pool of plans gives large employers an outsized influence on the retirement market,” says Eric Ryles, managing director of Judy Diamond Associates. Fewer than two-tenths of 1% of 401(k) plan sponsors are responsible for fully half of the nation’s 401(k) retirement plan assets, Ryles says. In other words, only 630 very large companies control $1.75 trillion in assets.

This distribution of 401(k) retirement assets suggests shifts in the investment options for a small number of plans could have a ripple effect that will impact every aspect of the market. The Pension Protection Act allows a plan sponsor to select a qualified default investment alternative (QDIA) on behalf of participants who have failed to specify how their contributions should be allocated, Ryles points out.

“Imagine if a new QDIA is launched by someone like BlackRock or Fidelity, and a very persuasive sales rep convinces 25% of these mega-sized plans that this is the right QDIA for them,” Ryles tells PLANADVISER. “It could become one of the most heavily traded mutual funds practically overnight.”

The size of the asset pool tipping one end of the market has already had an effect on the defined contribution plan market, according to Josh Cohen, managing director, head of the institutional DC  business at Russell Investments. “In the large end of the market you see a lot of unbundling and more best-of-breed menus being built,” Cohen tells PLANADVISER. Custom solutions, investment only and target-date funds (TDFs) that are not simply proprietary to the plan’s recordkeeper are all moving into smaller plans after very large plans began using them.

Trend Setters

When a large plan adopts some methodology it gets more press and more attention, notes Matt Smith, managing director of retirement services of BMO Retirement. “Plan sponsors make themselves aware of what other plan sponsors are doing, and what plans do affects other plan sponsors," Smith tells PLANADVISER. "Obviously bigger plans are used as models of participant best interest by smaller ones."

Advisers are the reason for this change, Cohen feels. “They have brought to their clients’ attention fiduciary concerns with accepting just the purely bundled model,” he says. “Plan advisers are on the forefront of helping build best-of-breed menus, fee benchmarking with investments and with recordkeepers.”

Plan advisers are always aware of trends in large plans, Smith says. “What large plans do radiates out in the marketplace,” he says. “Since plan advisers are generally in the smaller market (rather than multibillion dollar plans) it’s something for them to keep their eye on. Large plans will have an impact on how the entire marketplace moves.”

Future trends from the large-plan market could direct what happens in the retirement income space or the next generation of TDFs, which Cohen feels will use more information about the participant, such as more customized allocations based on specific situations.

These trends are not surprising, says Todd Parela, director of strategic initiatives at BMO retirement and trust services. “Throughout the history of this industry, trends start at the large plan sponsors and roll down to the smaller plan sponsors,” Parela tells PLANADVISER. “My guess is, you will see more introduction of new types of investments in the large market and see that come into the smaller markets over time. Individually directed or brokerage accounts were once seen only in large plans, and now you see those in small plans. They have the wherewithal and the sophistication to see what makes sense.”

The research was based on the most recently available 401(k) plan disclosure documents released by the Department of Labor (DOL), which are available in Judy Diamond Associates’ Retirement Plan Prospector database. Judy Diamond Associates provides sales prospecting and plan analysis tools for benefits brokers, financial advisers and plan providers. 

More information about this research is at www.judydiamond.com/about/contact.