Defined contribution plans in the public higher education sector could provide an area of opportunity for experienced providers in the United States.
That’s according to research from Boston-based Cerulli Associates, which said in its report “The Cerulli Edge — Retirement Edition, 2Q 2016” that nonprofit and governmental defined contribution plans are still increasing their share of total U.S. retirement assets. That’s in contrast to corporate defined contribution plans, which are experiencing negative net flows.
And that growth is expected to continue. Cerulli put the projected five-year annual compound growth rates at 4.3 percent for corporate defined contribution plans and -0.9 percent for corporate defined benefit plans, while in contrast not-for-profit and governmental defined contribution plans are expected to grow by 7 percent and public defined benefit plans by 1.6 percent.
The report said that “[t]he $4.7 trillion 401(k) market receives the majority of attention from providers, asset managers, and DC plan advisors/consultants,” and that the $879 billion 403(b) segment of the defined contribution market is often ignored — despite the fact that it is in line for more growth than the 401(k) market, thanks to the latter’s outflows. Cerulli “projects the 403(b) market to experience positive net flows for the remainder of the decade,” in contrast to the situation in the 401(k) market.
Cerulli said that asset managers and providers might do well to reevaluate their exposure to the 403(b) component of the defined contribution market. It pointed out that participants in 403(b) plans have more latitude than participants in 401(k) plans — in which many decisions are automated — with regard to enrollment choices, vendor selection and investment options.
In addition, public higher education organizations, it said, unlike private counterparts, “often are tied into a state-sponsored DB plan. Supplemental savings plans frequently augment the DB arrangement.” Providers often work with higher education organizations on more than one defined contribution plan type, and plan sponsors “typically view the various retirement plan structures as one holistic benefit program."
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