Corporate defined contribution assets soon will overtake
those of corporate defined benefit plans — and that could change everything. In Pensions
& Investments' universe of the 200 largest retirement plans, corporate
defined benefit assets totaled $1.187 trillion as of Sept. 30. Defined
contribution assets totaled $1.102 trillion — a difference of $85 billion. Of
the 99 corporations in the 200 largest retirement plans, 91 have both defined
benefit and defined contributions plans, while eight have only DC plans. None
offers only a DB plan.
Among the full P&I 1,000 universe, corporate
plan defined contribution assets already outweigh defined benefit assets,
having tipped the scales by $82 billion in the survey period ended Sept. 30,
2013. For the current survey, corporate DC assets in
the P&I 1,000 exceed DB assets by $246 billion. Of the 619
corporate retirement plans in the top 1,000, 516 have both defined benefit and
defined contribution plans and 103 have defined contribution plans only.
Among the implications, the trend has been leading to or
could lead to:
- smaller internal investment staffs and more
outsourcing;
- shifts in benchmarking to measuring retirement
readiness from solely looking at investment performance;
- increasing DC plan contributions;.
- more use of customized investment management
structures from mutual funds;
- new opportunities for boutique and alternative
investments managers as they devote more marketing to defined contribution
plans; and
- changes in communications as institutional
investment managers move from dealing with sophisticated defined benefit plan
executives to direct appeals more to participants.
Long time coming
The move to defined contribution dominance among large
corporate sponsors was a long time coming, but considered a sure eventuality by
consultants interviewed. Among public retirement plans in the top 200 ranking,
defined benefit assets still outpace defined contribution assets by a wide
margin, $3.204 trillion to $189.7 billion.
Of the 78 public sponsors in the top 200, 37 offer both
defined benefit and defined contribution plans, while 35 offer only defined
benefit plans and six offer only defined contribution plans. On the corporate
side, defined benefit plans are fading, both among larger or smaller companies,
said Stewart Lawrence, New York-based senior vice president and national
retirement practice leaders, Segal Consulting and Sibson Consulting, both units
of The Segal Group.
Off financial
statements
Overall, corporations increasingly seek to take defined
benefit plans off their financial statements to reduce their financial risk,
Ms. Walton added. On the defined contribution side, asset growth is being
boosted.
Aon Hewitt's latest “Trends & Experience in Defined
Contribution Plans” report surveyed plan executives at 400 corporations, whose
defined contribution plans have more than $500 billion in combined assets. Some
77% of respondents said a defined contribution plan is their organization's
primary retirement plan. That figure is up from 55% in 2003. The trend could
lead to smaller internal staffs at plan sponsors to oversee retirement plan
investments.
The growth in DC assets is encouraging a move to different
investment management structures, consultants said. Of some 250 employers
responding to Aon Hewitt's “2015 Hot Topics in Retirement” survey, 30% use some
form of a non-mutual fund structure for their investment fund options for participants.
By contrast, last year's survey only showed 16% had done so.
P&I's data also demonstrates that change. Among DC
plans in P&I's top 200, an average of 28.4% of the assets were in
mutual funds as of Sept. 30, down from 30.1% a year earlier. In terms of asset
classes, consultants generally continue to see the vast number of DC fund
options focused on traditional investment portfolios and target-date funds.
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