During Day Three of the PLANSPONSOR National Conference, in Washington, D.C., BrightScope data revealed top trends influencing the defined contribution (DC) industry.
Allegra Heyligers, managing director of Strategic Insight, highlighted the pivotal role defined contribution plans play in the retirement marketplace, with a $7 trillion increase in DC assets since 2001, 24 million plan participants and 660,000 existing plans. Additionally, Heyligers mentioned the growing average rate of participation and rising cash contributions. In 2015, total cash contributions amounted to $425 billion—a surge from the $291 billion in 2009.
She attributed the growing changes to the Pension Protection Act of 2006 (PPA), which created safe harbors for automatic enrollment and qualified default investment alternatives (QDIAs), typically target-date funds (TDFs). As a result, 27% of total plans auto-enroll new hires; TDF assets have risen 27% annually from 2009 to 2014; and 76% of all plans now offer TDFs.
Heyligers discussed recent developments to monitor investments, including the impact of lower-cost institutional share classes. Referring to BrightScope data, she said plan sponsors should expect to see more of these introduced, as R-share formation has initiated an enhanced alignment between investors’ and distributors’ needs.
Due to fiduciary concerns, index TDFs and collective investment trusts (CITs) have expanded in market share, with index funds gaining 15% from 2009 to 2014. CITs saw somewhat larger growth, at 26% over these years.
Compared with active TDFs, which dominated in the small-plan market, the use of passive funds varied across all segments, Heyligers said. They were most prominent in the $500 million through $1 billion segment, at 20%.
As DC plans boom, the industry will see a growth in provision of intermediary advice. Currently, 215,000 plans are served by an adviser and 2,700 by consultants, Heyligers said.
“There’s a growth of advisers and consultants in the DC retirement plan space,” she said. “There’s a lot more advice happening in the large end of the market compared with the small end.” However, Heyligers emphasized, while larger plans are more apt to use the services of an adviser, small and midsize plans shouldn’t be overlooked, especially as each have unique needs with which advisers could help. Micro plans, she said, will continue to develop.
“[The trends are] size-dependent, but you’ll continue to see those trends, whether it’s [in] CITs or separately managed accounts [SMAs],” she said.