A TowerGroup news release said the new participants, resulting from automatic enrollment, are likely to be less experienced with retirement plans and have questions on quarterly statements, investment performance, plan provisions and the use of self-service features.
Generally, because of auto-enrollment and auto-deferral increase, TowerGroup said, DC plans will go from $103 billion in assets in 2007 (79% participation rate and 5.4% average deferral) to $109 billion in 2011 without the auto plan features and $204 billion with the auto features (95% participation rate and 8.4% average deferral). The data assumes a 2007 average salary of $39,900 and 1.5% annual increases.
“With so many baby boomers on their way to retirement, it is essential that the country focuses on how companies support their employees in saving for retirement,” said Peter Delano, senior analyst in the TowerGroup Investment Management practice and author of the research, in the news release. “The Pension Protection Act includes features that make it more appealing for companies to offer defined contribution retirement plans to their employees as opposed to defined benefit plans. Other critical changes such as automatic enrollment will drive significant growth in total U.S. defined contribution assets.”
Meanwhile, the news release said that defined benefit (DB) plans are forecast to cover an estimated 11% of U.S. workers by 2011 – down from 20% in 2004 and 62% in 1983, according to a new research report.
TowerGroup researchers said defined benefit plan sponsors are likely to choose one of three options in response to the Pension Protection Act (PPA):
- increase contributions to underfunded plans,
- invest more assets in alternative investments; or
- freeze defined benefit plans.
The Needham, Massachusetts-based TowerGroup is a research and advisory services firm for the financial services industry.