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Retirement Markets Overview
Retirement Research Inc., May 2011, Pages: 49
A data-rich overview of the retirement markets. Primary focus on the size, segmentation, projected new business opportunities and key trends in the 401(k) market. Enhanced focus on the 403(b) and 457 markets. Also addresses the DB, SEP/SIMPLE/Solo (k), IRA Rollover, Retirement Income and non-qualified supplemental plan markets. This report is produced annually in April.
Participant activity over the past 12 months has remained remarkably stable in market conditions unprecedented since at least the dawn of the 401(k) era. Participants, however, have actively reduced exposure to equities (in addition to the passive reduction caused by market declines). While this may be an expected temporary reaction to volatile and rapidly declining equity markets, it may prove to be a more durable shift with implications for participants' ability to achieve a secure retirement and for retirement service providers' investment platform and revenue models.
Plan sponsors are not rushing to gut their retirement plans. Headlines notwithstanding, most plan sponsors continue to provide a match and only a small percentage has reduced the match. According to a “World at Work” survey completed in March 2009, 94% of plan sponsors provided some form of match, essentially unchanged from an earlier survey conducted in 2003. Only 3% had eliminated the match in the prior 12 months, 2% had decreased it and 6% were considering a decrease. Less than 1% of Fidelity-serviced plans with a match reduced or eliminated it in 2008. Even among large plans surveyed at year-end 2008 by Hewitt, only 5% said they were likely to reduce or eliminate the company match in 2009 (Hot Topics in Retirement, 2009).
Plan sponsors, increasingly aware of their fiduciary responsibilities, and with assistance from their advisors or consultants, can be expected to give very active attention to their investment fund offerings in the year or two ahead, with an eye both to fund expenses and offering the right mix of fund options in light of recent investment performance. Adoption of auto plan features has slowed considerably and target date fund momentum may have crested.
As long time proponents of full fee disclosure and movement to a more defensible pricing model, we are about to get what we wished for. While the competitive drama in Washington between the DOL and Congressional interests continues to play out (we imagine it will be 2011 before service providers need to be in compliance with whatever finally evolves), plan sponsors and their advisors are increasingly treating full fee disclosure as a practical given – certainly in the mid through large plan markets and increasingly in the smaller plan market as well. Naturally enough, service providers are accommodating those needs, though being careful about making systems investments pending the legislative/regulatory dictate.
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