Private DC Assets Approaching $6 Trillion

Assets held in private defined contribution plans are likely to surpass $6 trillion in 2018, according to an analysis from Cerulli Associates.

Jessica Sclafani, senior analyst at Cerulli, says the firm’s projections show total private DC assets will approach $6.5 trillion by 2020—with a majority of the money being held in 401(k) plans. The numbers suggest private DC plans remain one of the most important savings vehicles in the overall U.S. retirement system, she notes, surpassing all other retirement channels by assets, with the exception of the retail individual retirement account market.

“As defined benefit plans become rarer, particularly within the private sector, 401(k) accounts will likely be the primary savings vehicles for a large portion of U.S. workers,” Sclafani explains.

In a related trend, Cerulli finds asset managers are sharpening their focus on defined contribution investment-only (DCIO) opportunities and other retirement-related strategies, thereby creating an increasingly competitive marketplace, Sclafani explains.

Cerulli says DC contributions are anticipated to grow steadily and will approach $500 billion by 2019. This means contributions are on track to have doubled in the last three years, Sclafani says.

The analysis finds total retirement market assets grew from $18 trillion in 2012 to $21 trillion in 2013, exceeding $20 trillion for the first time through a robust 17% annual growth. Buoyed by strong equity market performance, the 2013 private DC industry surpassed the 2012 high of $3.9 trillion by adding an additional $825 billion in assets, Cerulli says.

Within the DC channel, Cerulli finds providers are adjusting their strategies to reflect the fact that plan distributions are beginning to outpace contributions. Baby Boomers will be retiring in full force over the next 15 years, Cerulli warns, so developing strategies to capture this pool of assets will be important.

Plan sponsors continue to look for innovative ways to engage the participant population, Cerulli says, such as stretching the company match or partnering with advisers willing to host seminars, or even one-on-one sessions with plan participants. Additionally, regulatory worries remain a sore spot for most plan sponsors, presenting another opportunity to the adviser and consultant community willing act as plan fiduciaries.

Another opportunity point for advisers and asset managers, according to Cerulli, comes from a wave of corporate pension plan sponsors seeking to implement de-risking strategies—with the goal in mind of freezing and/or terminating the plan. Firms may benefit from reevaluating their fixed-income capabilities and bringing de-risking experts or specialists in-house to support client conversations.

“The firms that can position themselves as knowledgeable and consultative in constructing a dynamic de-risking glide path will benefit,” Cerulli concludes.

The findings are from Cerulli’s report, “Retirement Markets 2014: Sizing Opportunities in Private and Public Retirement Plans,” which examines the size and segmentation of public and private U.S. retirement markets. More information on obtaining Cerulli reports is here