Assets in individual retirement accounts are likely to grow
to almost twice the amount held in 401(k) plans over the next five years,
according to an industry analyst.
IRA assets are projected to swell to $12.6 trillion by the
end of 2022, according to Jessica Sclafani, director of the retirement practice
at research firm Cerulli Associates. That's up from $9.2 trillion at the end of
2017. By contrast, 401(k) assets in the U.S. are estimated to hit $6.6 trillion
by 2022 — an increase from $5.3 trillion last year.
Rollovers from 401(k) plans to retail retirement accounts
is a large reason for this growth dynamic, said Ms. Sclafani, who spoke Monday
at the Kohler Retirement Plan Advisor Conference in Kohler, Wis.
Contributions to IRAs — due mainly to rollovers — have
exceeded distributions from these retail accounts in recent years, meaning IRAs
have been growing on an organic basis. Meanwhile, this hasn't been true for
401(k)s: Distributions have exceeded contributions in some recent years, such
as 2014 and 2015, signaling negative net flows. Instead, market performance has
been the primary growth driver in 401(k) plans.
"The 401(k) market is in a somewhat precarious
position," Ms. Sclafani said. "It's reliant on capital market returns
for future asset growth."
Around 96% of the $2 trillion in total IRA contributions
between 2012 and 2017 year is due to rollovers from defined-contribution plans.
The IRA market experienced net flows of about $580 billion in this time period.
That trajectory has been consistent, and Cerulli expects it
The good news for retirement plan advisers: The lion's
share — 55% — of that $430 billion in flows came from an existing adviser
relationship, while 6% came from a new adviser relationship, Ms. Sclafani said.
Meanwhile, of the money eligible to be rolled over that
didn't go into an IRA, 69% stayed in the participant's employer-sponsored
retirement plan, 5% of assets were cashed out and a paltry 0.2% was rolled into
another DC plan.
Money has been consistently rolling out of DC plans into
IRAs partly because of the lack of flexibility in workplace plans with
distributions, Ms. Sclafani said. Most DC plans don't allow for ad hoc
withdrawals, which forces participants to seek more flexible account types.
"It's hard to think about the DC plan as a
retirement-income platform retaining the assets of retired participants, when
they generally don't have regular access [to their money]," Ms. Sclafani
said. "So they need to roll over."
IRAs became the largest segment of the U.S. retirement
market in 2013, beating out defined-contribution and traditional pension plans.
Over the decade between 2006-16, IRAs notched the largest compound annual
growth rate — 6.7% — compared with 5.2% for DC plans and 1.6% for pensions, Ms.
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