COVID-19 expected to bring a dip in defined contribution plan sales
Report suggests advisors focusing on the small-plan market may have faced greater business disruptions than those for large plans.
Sales of defined contribution plans are expected to take a hit in 2020 as the coronavirus pandemic has prompted many employers to postpone or cancel putting their plans out to bid.
A survey of recordkeepers by Secure Retirement Institute and the Retirement Leadership Forum said DC plan sales are predicted to be considerably lower in the second and third quarters of 2020, compared with pre-COVID-19 sales forecasts. The study shows recordkeepers are optimistic that sales in the fourth quarter will rebound slightly, but still fall below pre-pandemic expectations.
Sales expectations in the second quarter of 2020 were off 21 percent from pre-COVID expectations, and were off by 22 percent in the third quarter. In the fourth quarter of 2020, the survey said, sales were predicted to be off by 14 percent.
The survey questioned 14 companies, representing approximately 23 percent of U.S. record-kept assets, to learn what recordkeepers expect to happen to the DC market as a result of COVID-19.
“This forecast aligns with what we saw during the last financial crisis more than a decade ago. According to SRI research, new plan formation declined nearly 40% between 2008 and 2010,” said Deb Dupont, Secure Retirement Institute associate managing director. “During the same period, sales activity for existing plans (takeovers) increased slightly. If the current COVID-19 crisis results in a similar pattern, we would expect a moderate decline in sales with the new-plan/smaller-plan market to be impacted the most.”
The greatest changes in the market as a result of COVID-19 will be felt in the small-plan market, the survey suggests. Recordkeepers focusing on larger plans, those of $500 million or more in assets, expect their sales to be 5 to 10 percentage points closer to goal than those who target smaller plans.
The report suggests advisors focusing on the small-plan market may have faced greater business disruptions, while the largest plans tend to be more direct- or consultant-sold, and therefore disruptions are less consequential.
In addition, the person managing the DC plan in smaller companies is more likely to be responsible for areas other than the retirement plan — and more likely to be occupied by the challenges of the present environment.
In addition, the study said, about a third of sales in the small-plan market are newly formed plans. Given the business disruptions caused by the pandemic, most small employers without a DC plan in place aren’t likely to add one until business normalizes.
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