New data from independent investment consultant NEPC examines challenges and trends in the defined contribution (DC) market.
The 17th annual Defined Contribution Plan Trends & Fees Survey fielded responses from 207 DC plans across 119 clients and with a total of 2.2. million participants and $283 billion in aggregate assets. Twelve recordkeepers responded to the survey.
The median balance for all participants was $69,045, while this number doubled for all participants over age 60, to $134,839. The average tenure for all participants was 11 years, and 20 years for those over 60 years old.
TDFs remain the dominant fund
NEPC data shows that target-date funds (TDFs) remain the dominant investment vehicle across all retirement plans, with 96% of respondents currently offering the funds and 46% of total plan assets invested in TDFs. Ninety-five percent of TDFs were also used as the qualified default investment alternative (QDIA).
The average participant balance invested in TDFs was $113,254, while the median balance was $43,704, finds NEPC.
Adoption of managed accounts, on the other hand, has remained stagnant over the last four years, according to NEPC data. Thirty-eight percent of plans currently offer managed accounts, with 5% of participants utilizing and 4% of assets investing in the portfolios.
Most participants who work with managed accounts are under age 40 (39%), while 36% are between ages 40 to 55 and a quarter are over 55 years old.
Top trends in the DC market
When polling NEPC consultants, the data found most clients are asking their advisors about retirement income, environmental, social, and governance (ESG) factors in DC plans, markets and inflation, fees, self-directed brokerage windows, and legal and regulatory matters, including plan priorities following SECURE 2.0’s passage last year.
The findings also saw a surge in DC outsourced chief investment office (OCIO) assets. As plan sponsors’ workforces and governance structures change, they are increasingly looking for OCIO solutions to streamline their plans, said NEPC in their research. In 2021, NEPC saw a 94% increase in OCIO assets, driven by a 17% increase in OCIO DC clients.
Additional findings from the study can be found here.
SEE ALSO:
- 5 Key Themes in J.P. Morgan Asset Management’s 2023 Guide to Retirement
- Fixing the ’40’ in Defined Contribution Plans
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.