Rollovers from 401(k) plans helped individual retirement account (IRA) assets remain the largest segment of the retirement market, reaching $13.9 trillion in 2021 according to a new report released today.
Over the past 10 years, IRA marketshare has increased from 31% to 38% and is expected to grow to 41% by 2027, finds The Cerulli Report—U.S. Retirement Markets 2022: The Role of Workplace Retirement Plans in the War for Talent.
Much of the asset growth in the IRA market can be attributed to rollovers from defined contribution (DC) plans, the report finds, with rollovers accounting for $2.9 trillion in IRA asset growth between 2016 and 2021.
Report says sharp market downturn in 2022 should place downward pressure on IRA rollover balances in 2023
“The exceptional capital market performance experienced during this five-year period translated to higher average 401(k) account balances and—for many higher-balance participants nearing retirement—higher rollover balances as well,” says Shawn O’Brien, associate director.
Conversely, the sharp market downturn in 2022 should place downward pressure on IRA rollover balances in 2023, resulting in slightly higher net flows into corporate DC plans.
“The auto-enrollment and auto-escalation provisions within SECURE 2.0 and ongoing legislative and market efforts to expand workplace retirement plan coverage may facilitate stronger contribution growth in the years ahead,” concludes O’Brien.
The report also found private bank and bank trust executives are actively implementing inorganic growth strategies, namely mergers and acquisitions and advisor recruitment, to achieve scale in an increasingly competitive wealth management environment. Firms that can offer a wide range of services (i.e., planning, trust, banking) and a strong advisor platform will be able to compete more efficiently to serve their clients’ needs.
As of the end of Q3 2022, the average IRA balance at Fidelity was $101,900, a 24.9% decrease from Q3 2021, an 8% decrease from last quarter, and a 33% increase from 10 years ago.
The Cerulli report assesses plan sponsors’ strategic priorities, investment menu construction, retirement income offerings, financial wellness objectives, and service provider relationships, and also explores trends in the state-sponsored retirement plan market.
SEE ALSO:
• State IRA Programs Boost Private 401(k) Plan Adoption
• Rollover Ripoff: IRA Investors Pay ‘Significantly’ More Than 401k Participants