DC Plans at Nonprofits Are Where the Growth Is: Cerulli

The not-for-profit and government defined contribution plan market is second only to IRAs for projected asset growth, according to research from Cerulli Associates. A report released in April projected that space will swell assets and revenue in the defined contribution market over the next five years.

“Both segments are estimated to exhibit a five-year [compound annual growth rate] of 7% or greater from 2015 to 2020. This is in contrast to the corporate defined benefit (DB) market, which will exhibit negative growth over the same period and the public DB market, which will see only marginal asset growth,” Jessica Sclafani, associate director at Cerulli, said in a statement.

The NFP/governmental market includes 403(b), 457, and 401(a) plans, as well as the Federal Thrift Savings Plan. Total plan assets for the NFP/governmental market are expected to grow to $2.4 trillion by 2020, according to Cerulli.

The 403(b) market is “highly diverse and cannot be accurately portrayed in monolithic terms,” Cerulli noted. Plan sponsors need to address distribution, client service and marketing strategies on a segment-by-segment and sector basis. “Success and credibility in the 403(b) market requires a thorough understanding of each segment’s defining characteristics,” including their unique barriers to entry and asset drivers.

Part of that complexity is due to the “multi-vendor environment” many 403(b) plans operate in, Cerulli found. a 2016 survey of 403(b) plan sponsors found more than half work with multiple vendors because participants want to have choice in their plans. “This concept of choice and degree of choice available to participants emerges as a divisive topic in the 403(b) market,” according to the report.

The health care and higher education sectors are the most likely sectors of new asset growth in 403(b) plans, the report found, while the K-12 sector will be the most difficult for new providers and asset managers to break into.