The Cerulli Associates study of the nearly $10.2 trillion retirement savings markets said the asset flow is likely to start out relatively modestly as plan sponsors increasingly implement the rules and participants become more aware of their new savings opportunities. The EGTRRA asset flow will be more than $50 billion in 2006, Cerulli said.
Researchers cited EGTRRA’s increased contribution limits for defined contribution plans and individual retirement accounts (IRA) as well as catch-up provisions allowing stepped-up saving for investors over 50 years old.
EGTRRA-driven assets could even soften the blow for 401(k) plan sponsors as baby boomers reach retirement age and start taking withdrawals, the study said.
Down Market Depression
Also, Cerulli’s market study aptly illustrated how much 401(k) asset levels have suffered during the recent bear market – dropping for the second year in a row to $1.64 trillion, down $101 billion during 2001.
Corporate defined contribution plans finished the year with $2.23 trillion in assets, down $120 billion during 2001, Cerulli said. But good times could be ahead in terms of positive net asset flows. Cerulli researchers estimate defined contribution net flows to stay positive – growing to $40.7 billion by 2007.
Defined contribution plan sponsors won’t be hurting for participants in the coming years with a projected growth to 72.3 million by 2008 – up from 59.2 million 2001.
The markets did take their toll, however. Average assets per 401(k) participant dropped more than $4,500 in 2001 to a year-end close of $36,390. Cerulli said this reflected a two-year dip of more than $9,290.
The Cerulli researchers studied the relative size of 401(k) plans and concluded that:
- The vast majority of 401(k) plans, 87.5% in 2001, are in the micro segment. This represents 350,129 plans out of the total 399,944 401(k) plans in the market. This concentration of plans in the micro market is becoming larger as new plan creation occurs primarily in this segment. For example, in 1994, 83.1% of plans were in the micro market. Cerulli projects that percentage to rise to 88.5% by 2007.
- The next largest segment in terms of plans is the small plan market, with 9.6% of all 401(k) plans in 2001.
- While the mega market may be losing ground in terms of its share of plans and participants, it is maintaining its hold on industry assets. In 2001, the 1,043 mega market plans controlled 57% of industry assets or $933.2 billion, for an average plan size of $894.8 million.
For a summary of the report, go to the Cerulli web site