More evidence that plan sponsor interest in keeping retiree assets in-plan is increasing comes from the latest Cerulli Edge—U.S. Asset and Wealth Management Edition, released today.
The new research found that more than half (54%) of 401(k) plan sponsors prefer to keep their retired participants’ assets in their plan, as opposed to having participants roll their assets into an individual retirement account (IRA) or another employer sponsored plan, a notable increase from just 26% in 2019.
“As more plan sponsors strive to keep participants’ assets in-plan, asset managers should focus their retirement income product distribution on the mega plan market.”
Shawn O’Brien
When looking specifically at plans intermediated by institutional investment consultants, 35% actively seek to retain retiree assets and an additional 40% prefer to retain retiree assets but do not actively seek to retain them. Considering the size of the plans that institutional investment consultants advise, this data confirms what many industry stakeholders suspect—that interest in keeping retiree assets in-plan is far greater among plan sponsors in the large and mega plan market than those in smaller plan asset segments.
“Many larger plan sponsors are considering or implementing plan design and investment lineup changes to make their plans decumulation-friendly,” says Shawn O’Brien, associate director. “As more plan sponsors strive to keep participants’ assets in-plan, asset managers should focus their retirement income product distribution on the mega plan market.”
Cerulli recommends asset managers’ key account managers and consultant relations personnel schedule periodic check-ins with plan sponsors to assess any progress or new initiatives related to making their retirement plan more suitable for decumulation. From there, asset managers can more confidently assess whether the plan sponsor will be open to considering new retirement income products or solutions for their plan.
“Overall, growing interest from plan sponsors in making their plans more retiree-friendly creates an opportunity for asset managers and retirement plan providers to satisfy a nascent, albeit largely unmet, need for more effective, comprehensive in-plan decumulation solutions,” O’Brien said. “Innovations in in-plan decumulation will benefit mass market, middle market, and certain mass affluent retirement investors who are often ignored by the traditional wealth management industry.”
Earlier this year, Cerulli reported that rollovers from 401(k) plans helped IRA assets remain the largest segment of the retirement market, reaching $13.9 trillion in 2021. Over the past 10 years, IRA marketshare has increased from 31% to 38% and is expected to grow to 41% by 2027, according to “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 was attributed to rollovers from defined contribution plans, the report found, with rollovers accounting for $2.9 trillion in IRA asset growth between 2016 and 2021.
SEE ALSO:
• IRA Assets Approach $14 Trillion Thanks to 401(k) Rollovers
• More Retirees Stay In their Plan Post-Employment