$600B in Annual Outflows Dents DC System Growth: Morningstar
More than $600 billion has left defined contribution plans each year since 2000 through rollovers and cashouts, according to a new report from Morningstar. If even half of those outflows had stayed in the system, the report says total DC plan assets would be 27% higher today.
Morningstar’s Center for Retirement & Policy Studies today published its 2026 Retirement Plan Landscape Report, offering a data-driven look at what’s really happening beneath the surface of the U.S. retirement system, and why headline growth obscures mounting structural challenges. The report was authored by Senior Analyst Lia Mitchell.
While defined contribution plans surpassed $10 trillion in assets by the end of 2024, the report says the system is marked by constant turnover and leakage. Morningstar’s analysis of Form 5500 data shows that more than 70,000 new DC plans were added each year from 2022 to 2024, but 392,000 plans closed between 2015 and 2024—with 2024 topping the previous high for closures from the pandemic-hit 2020.
The number of DC plans, employers and participants have all grown consistently over the past decade, with a small slowdown around the onset of the pandemic in 2020. Outside of that year, when growth rates in all three areas dipped, the private sector retirement system has averaged annual increases of 2.6% of plans, 2.7% of employers, and 3.6% of participants.
The report also shows defined contribution asset growth is significantly dependent on market conditions rather than increases in the number of employers, plans or participants in the system. This dependency is exacerbated by the constant flow of assets out of the system, generally through rollovers.
Mega plans cover half of participants
The report finds retirement security is increasingly concentrated among a small number of large employers. Just 0.3% of defined contribution plans from only 2,110 employers cover 50% of all participants, underscoring how outcomes for tens of millions of workers hinge on a narrow slice of the plan universe.
Participants in small plans also pay more to save for retirement than those at larger plans, and while the difference at the median has marginally declined, the large tail of high-cost small plans persists. The median cost among small plans declined 4% in 2023, falling to 75 basis points. But the average small plan remains nearly three times as expensive as the average mega plan, where the median cost is just 27 basis points. The report found 27% of small plans cost more than 100 basis points.
CITs continue to gain traction
For more than 10 years, the largest DC plans have been moving from mutual funds to Collective Investment Trusts (CITs) for their investment lineups. These pooled vehicles typically offer similar strategies but are also less regulated and can be much less expensive for participants than mutual funds.
CITs now represent 42% of DC plan assets, up from 23% a decade ago, and are increasingly appearing in mid-sized and smaller plans as sponsors seek to rein in costs.
Mega plans hold a commanding 89% of all DC CIT assets, but among plans with $100 million to $500 million in assets, CITs are approaching one-fourth of all assets. Even among plan with less than $50 million in assets, CITs now account for 9.1% of assets after hovering between 6% and 7% for the previous decade.
DB plans still significant
The report also said defined benefit pensions remain a meaningful pillar of the U.S. retirement system. Despite long-term decline during the shift to DC plans—active participants in defined benefit plans declined 27% from 2014 to 2023—more than 29 million Americans currently receive or are entitled to DB benefits, and 25% of all retirement distributions in 2023 came from pension plans.
Check out Morningstar’s Center for Retirement & Policy Studies’ complete 2026 Retirement Plan Landscape Report here.
SEE ALSO:
• Rollovers Hit $1 Trillion as Workers Move to Employer Plans
• Target Date Fund Assets Surge to $4.8T as CITs Gain Market Share
• Democratizing Retirement Investments: The Rise of Collective Investment Trusts
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.