DC Market Could Surpass $4.2T Next Year

The 401(k) market’s annual growth rate is holding at 9% and could push total assets beyond $4.2 trillion next year, a report from Ignites Retirement Research shows.

That’s up from a base of $3.6 trillion in total private DC plan assets measured at the start of 2013, but the growth would represent a slowdown from the 11.4% rate at which 401(k) assets grew in 2012.

According to the report, called “Where DC Markets Will Grow,” financial market performance driven by an improving U.S. economy will be an important factor for industry growth in 2014.

In an interview with PLANADVISER, Ignites research director Tom Modestino said he expects strong investment performance within private DC plans to cover expanding outflows as early waves of Baby Boomers hit retirement and start drawing from 401(k) accounts.

“The 401(k) market has hit a maturity phase that will feature slightly slower growth,” Modestino says. “Yet it’s still a very desirable segment to asset managers because of dependable and regular contributions, showing strong loyalty.”

The report shows the 2008-09 financial crisis led to steady declines in the total number of private DC plans from 2009 to 2011. But an improving economy in 2012 drove the creation of 653,000 new DC plans during that year.

Modestino says his firm expects that number to continue to rise moving forward, increasing by 0.5% during 2014. Still, there will almost certainly be fewer private DC plans in operation by the end of 2014 than existed in 2008.

Other findings in the report suggest retiree withdrawals will be only partly offset by the use of automatic 401(k) enrollment features. In fact, the number of active DC plan participants grew by 2.8% per year from 2007 through 2012, and the report projects that pace to slow to 2.5% in 2014.

The report suggests there are many opportunities for both 401(k) plan providers and asset managers to strengthen their position in the market by offering low-cost access to investments that meet the changing needs of participants.

“The world of 401(k) plans is growing more complex, and demanding more from providers even as it slows a bit,” Modestino says. “From a competitive standpoint, asset management companies will increasingly fight to maintain or grow market share.”

More on the report and Ignites Retirement Research is available at http://retirement.ignites.com/.