Auto Plan Features Forecast to Push DC Growth
A TowerGroup news release said defined benefit (DB) plans will 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.
“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.”
Because of auto enrollment and auto deferral increase
(See
Auto Plan Features
Still on the March in 2007
), 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.
According to the announcement, the anticipated 20% increase
in participants between 2007 and 2011 as a result of
automatic enrollment means a pool of 9.6 million people
with potential questions regarding their defined
contribution plan. These participants 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, TowerGroup
said.
Data from the study is here .
More information is at
www.towergroup.com
The Needham, Massachusetts-based
TowerGroup is a research and advisory services firm for the
financial services industry.