A webinar with SEI and Strategic Insight on Wednesday examined trends in the retirement plan market, particularly in defined contribution plans.
The retirement market overall is approaching $25 trillion, John Alshefski, a senior vice president and managing director of SEI’s Investment Manager Services division, said on the webinar, with a 10% compounded growth rate over the last 40 years.
“We might think this is significant, but [with] some of the other trends we’re seeing, maybe retirement savings is not enough for all of the participants in the market. Clearly we need to be looking at other ways to save for our retirement,” he said.
Sixty percent of those retirement assets are individually directed, he said. There are about $6.8 trillion in DC plans, Alshefski said, almost a quarter of which are in the $50 million to $499 million market. Although that segment has the greatest proportion of assets, 95% of plans have less than $10 million.
“There are still large opportunities out there for other segments that don’t include large plans,” he said, noting the number of participants are evenly spread across plan size segments.
Retirement savings have recovered steadily since the financial crisis, according to Alshefski, but participants’ confidence levels are still low. Less than a quarter of those with under $50,000 in savings are confident they’re saving appropriately.
“There’s still a long way to go in education of participants, but there’s lots of opportunity as an industry,” Alshefski said.
Forces of Change
There are four forces of change affecting the retirement industry, according to the Bridget Bearden, director of retirement research at Strategic Insight. “The same historical drivers of retirement 6:25 market growth, will be the same drivers of growth tomorrow,” Bearden said.
One factor in higher retirement assets is the number of older participants, who are both earning more and able to make catch-up contributions to their plans. Bearden said that as of year-end 2013, more than half of DC assets were owned by people in their 50s and 60s.
However, she said the industry is at an “inflection point in regard to actual behavior.” Boomers are working longer, with many planning to work past age 70.
“The reluctance to retire may be driven by many factors,” Bearden said. She referred to a Transamerica study, though, that shows lack of savings and the need for income are right at the top of the last. “This reluctance to retire will result in prolonged contributions to retirement accounts and preservation of assets already saved.”
3 Areas of Regulatory Focus
Regulation, of course, is a major factor affecting defined contribution plans. Businesses are less likely to offer defined benefit plans, and the Pension Protection Act of 2006 paved the way for automatic features and “specifically fueled the growth of auto-enrollment and assets in qualified default investment alternatives, specifically target-date funds,” Bearden said.