Smarty-pants professors might benefit from a “401(k)-like plan,” research from Cerulli Associates finds, further opening defined contribution plans—or 403(b)s—to an area once reserved for defined benefits.
Once dominated by firms such as TIAA-CREF, Boston-based Cerulli finds that defined contribution (DC) plans in the public higher education sector “could be an area of opportunity for experienced providers.”
“The higher education sector of the not-for-profit DC market is considered attractive for a combination of reasons,” Jessica Sclafani, associate director at Cerulli, said in a statement. “The higher education component of the not-for-profit DC market has room for further vendor consolidation, in particular among large public organizations and some smaller private universities and colleges, which concentrates assets with a single provider.”
“The higher education sector is beginning to adopt more 401(k)-like practices in terms of investment menu design, which may open it to providers and asset managers that have traditionally focused on corporate DC plans,” Sclafani added. “While Cerulli does not anticipate that the public sector will undergo the fairly swift transition from defined benefit plans to DC plans that the corporate sector experienced, in some states public employees will need to be more self-reliant in retirement than prior generations that collected a generous pension.”
“As of year-end 2014, the higher education sector of the NFP/governmental DC market held the greatest percentage of 403(b) assets (44 percent) with $393 billion,” Sclafani continues. “After more than 20 targeted research interviews with providers and asset managers, with a presence in the not-for-profit /governmental DC market, it was confirmed that DC plans within the public higher education sector are a source of opportunity.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
