The average defined contribution (DC) participant holds 38% of their investable assets — the equivalent of about $147,000 — within an employer sponsored retirement plan, according to research from Cogen Reports.
And, the research shows that the proportion of total assets that the DC plan represents increases as the investor gets older. Second-wave baby boomers hold about half of their total investable wealth in DC plans on average.
Linda York, vice president of syndicated research for Cogent Wealth, reviewed highlights of two recent Cogent reports — the DC Participant Planscape and the Investor Rollover Assets in Motion — research on investors and participants with employer-sponsored retirement plans assets during a recent webinar.
“It’s important to keep in mind that these DC plans are a very substantial and important part of participants’ overall wealth and financial security,” York said. “It’s also important to note that the majority of investible assets are held outside the plan, indicating the potential opportunity for providers to encourage consolidation as well as the potential risk that your participants may choose to roll their plan assets with another firm when the time comes.”
There is some positive action from participants in defined contribution retirement plans that York identified during the webinar.
According to the DC Participant Planscape, nearly a third (32%) of participants increased their DC plan contributions in 2014, which York said was 11% more than the 21% who expressed the intention to do so in 2013, in the 2013 survey. It’s also up from the 27% of participants that increased their DC plan contributions in 2013 and 2012 respectively.
York makes sure to point out that the real drivers of these increases are the Gen X and Gen Y investors. Among the Gen Y investors, 35% of them bumped up their contribution levels last year. More than a third (33%) of Gen X investors also bumped up their contribution levels last year.
“We think this is likely due to the improved economic climate in the U.S. and growing account balances that participants have seen thanks to the positive market performance — all of which is encouraging people to invest more in their DC plans,” York said.
The DC Participant Planscape report also shows that about a quarter of participants who had not made an increase within the past year plan to increase their deferrals in 2015 — and among those the Gen X participants are making the most waves, with 28% of them planning on bumping up their contribution rates this year.
“And keep in mind,” York added, “that the oldest Gen Xers are turning 50 this year and are entering their peak earning years, so these contribution increases can quickly add up to significant account growth.”
Former plan participants
Another audience covered within the participant planscape report is former plan participants — that is, individuals holding at least 5,000 in a former employer’s plan. York said these participants are asked “specifically about their intentions with that money”—whether it be to leave it in the plan, roll it into an IRA with their current provider or another firm, roll it into their current plan that their participating in or simply cash it out and take the tax penalty.
The good news: York said, “Overall we find that firms are poised for net increases with 44% of former plan participants planning on intending to leave their money just where it is and another 14 % likely to open an IRA with their former plan provider — resulting in a ‘net in’ score 58%.”