Small, Mid-Size Plans Hit DC ‘Sweet Spot’

Small, mid-size plans account for one-third of plans, less than half of participants

More than one-third of the defined-contribution plan market is made up of small and mid-size plans, Cerulli Associates announced Thursday. The report notes that sponsors in this “sweet spot” have been underserved for years, opening opportunities to catch their business for recordkeepers, advisors, and third-party administrators who are able to meet their needs.

Small plans are those with between $1 million and $9 million, while mid-size plans have between $10 million and $49 million.

In fact, the report notes that some firms that typically service large and mega plans have “outlined plans to target service delivery” to companies with mid-size plans. “They recognize the sweet spot that this market has become for firms with expert services and strong brands,” according to the report.

The report notes that an additional opportunity exists among employers who have yet to offer their workers a 401(k) plan.

"This sweet spot in the small- and mid-sized plan segments can also be seen in the segmentation by assets," Bing Waldert, director at Cerulli Associates, said in a statement. "There is a healthy cut of these plans that demand an elevated measure of services and support, but at a level where margins can be maintained due to plan simplicity and a diminished demand for open architecture."

While large and mega-plans, those with more than $50 million, have just 1% of plans, they account for about 58% of the 57 million active participants. Small plans have nearly 19% of active participants; mid-size plans have 17.4% of participants.

"For national recordkeepers, DC advisors, and third-party administrators, these more equitable proportions mean that it may be possible to benefit from economies of scale-even with small- and mid-size plans (since more participants help to mitigate the costs of technology and administration," according to Tom Modestino, associate director at Cerulli.

The report notes that if recordkeepers or TPAs miss their scale targets, they could become targets for consolidation. Having a significant base of DC plan participants can help a firm capture rollover opportunities.

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