A reversal in the dynamics in the 401(k) market will have major ramifications for money managers in terms of hanging onto or gaining defined contribution assets.
Cerulli Associates estimates that 401(k) plan aggregate withdrawals for the first time exceeded contributions in 2014. Distributions totaled $377 billion, while contributions were $338 billion.
“We think (2014 was) the first year for decumulation,” said Bing Waldert, director at Cerulli, a Boston-based asset management analytics firm, adding the firm is waiting for numbers for 2013 from the Department of Labor to confirm its estimate.
The change is expected to continue, and means 401(k) plans are “not going to be a guarantee of inflows anymore” for investment management firms, Mr. Waldert said.
A surge in older workers retiring along with a pickup in economic activity encouraging job changes is driving the new trend in net negative flows.
“You have some demographic pieces starting to play in,” including “older investors are starting to retire and … use their accumulated savings to fund their retirement,” Mr. Waldert said.
A J.P. Morgan Asset Management report, released in August, said the segment of the population crossing the 65-year-old threshold between 2014 and 2030 is projected to grow by 48%.
Adding to the negative outlook, the generation of 401(k) plan participants following retiring baby-boomers lags in wealth accumulation growth rates, the report said.
Cerulli estimates 401(k) plan assets totaled $4.7 trillion in 2014, Mr. Waldert said.
Justin R. White, New York-based partner at investment management consulting and research firm Casey Quirk & Associates LLC, said: “At a high level for the industry, defined contribution is not going to be a huge driver of organic growth in aggregate. However, because the way (plan participants) are investing within defined contribution is changing so much, there will be big winners in the defined contribution market.”
“It's a zero-sum game,” Mr. White added. “It's about takeaway vs. organic growth. Because of mainly (the growth of) target-date funds … there are meaningful opportunities. But for some firms, it won't be one of those (trends) where the tide kind of lifts all boats. There will be meaningful losers as a result of those changes as well.”