Assets of the P&I DC 100 increase 5.1% to $1.12 trillion

Assets of the 100 largest corporate U.S. defined contribution plans rose 5.1% to $1.12 trillion in 2014 from the prior year, data analysis by Pensions & Investments shows.

The gain in DC plan assets was aided by a solid showing for equities — the S&P 500 index rose 11.39% in 2014. The results might not be so robust for the 2015 plan year, because the S&P 500 slipped just less than 1% last year. These results exclude reinvestment of dividends.

Data for this report were obtained from companies' filings with the Securities and Exchange Commission and Department of Labor, primarily for 2014 plan years. The P&I analysis covers U.S.-based companies, both public and private but excludes mutual companies. The data exclude companies' separate DC plans in Puerto Rico.

One of the biggest gainers was target-date funds, which surged 21.4% in 2014, to $106.59 billion in participants' investments, from the previous year. Target-date funds account for 9.5% of total assets in the P&I analysis.

“That's no surprise,” said Liana Magner, Boston-based partner and national defined contribution investment segment leader for Mercer LLC. Target-date funds have benefited from being the dominant qualified default investment alternative, Ms. Magner said.

Automatic enrollment has steered more money into the QDIAs, and target-date funds — even many designed for people near or at retirement age — have a healthy equity component, Ms. Magner added.

Consultant Marina Edwards said target-date funds go “hand in hand” with auto features. Some of her clients that used balanced funds or managed accounts as QDIAs have switched to target-date funds, said Ms. Edwards, a Chicago-based senior consultant at Willis Towers Watson PLC.

Ms. Edwards said auto enrollment, and more recently auto escalation, have played a role in overall DC plan asset increases. She said more plans are using or considering an opt-out strategy for auto escalation rather than an opt-in approach.

The opt-out approach is more effective in raising account balances, Ms. Edwards said. “We have seen a lot of clients revisiting auto features,” she said. Clients will auto-enroll participants at the company match, then auto-escalate one percentage point of participant pay annually to reach 12% or 15% of pay per year contributed to a DC plan, she added.

Some clients have auto escalation take effect at the same time as they announce a pay raise “so there's less of an impact on participant paychecks,” Ms. Edwards said.

Target-date fund asset growth also has been aided by re-enrollment strategies by plan sponsors, said Michael Volo, a Wellesley, Mass.-based senior partner at Cammack Retirement Group Inc. “Re-enrollments are driving flows into QDIAs, which are usually target-date funds,” he said.

As for overall DC plan asset growth, Mr. Volo and Ms. Edwards agreed that the biggest driver has been market appreciation.

P&I data show that among the largest U.S. corporate DC plans, domestic equities assets rose 3.5% to $332.79 billion in 2014, or 29.6% of the total assets; the combined non-U.S. and global equities assets grew 7.6% to $93.35 billion, or 8.3% of the total.

Consultant Ross Bremen said future DC plan asset growth will be affected by several conflicting trends — stock market uncertainty after a string of big annual gains, the expected wave of baby boomer retirements and the shrinking role of defined benefit plans.

“Going forward, the biggest question as we see more people retiring, is: Will the market environment and retirees leaving plans cause a leveling off or decline” in DC plan assets, said Mr. Bremen, a partner at Boston-based NEPC LLC.

On the other hand, the closing and freezing of DB plans could mean sponsors will direct more resources to DC plans, Mr. Bremen said.

While equities grew, stable value shrank in total assets and allocation percentage among the largest plans. In 2014, stable value accounted for $105.51 billion, or 9.4% of aggregate assets in the P&I universe vs. $118.9 billion, or 11.1% a year earlier.

Consultants said the reduced allocation to stable value was primarily due to equity assets going up rather than participants dropping out. “It's a function of rising equity markets,” Mercer's Ms. Magner said.

Ms. Edwards of Willis Towers Watson speculated that stable value options might have lost some assets as employees retired and took their money out of DC plans. Re-enrollment also played a role in reducing stable value assets, she added, because re-enrollment is designed in part to improve and diversify participants' asset allocations.

Other consultants suggested upcoming money market fund rule changes from the SEC might prompt sponsors to re-examine stable value as a replacement for money market funds. The key consideration for DC plans is an SEC rule that takes effect in October and requires providers of prime money market funds to create redemption gates — or limits — on withdrawals by participants in DC plans as well as to establish fees on withdrawals to prevent a run on the funds.

“You'll actually see more sponsors taking another look at stable value,” said NEPC's Mr. Bremen, noting the motivation will come not only from the SEC rule but also some recent lawsuits challenging sponsors for choosing a money market fund rather than stable value. Mr. Bremen said plan executives' talking doesn't automatically lead to action.

Plan executives are acting to increase the role of passive investments in DC plan lineups, according to the P&I database. Among corporate DC plans identifying passive vs. active assets, the former represented 48.5% of total assets in 2014 compared to 45.3% in the year-earlier analysis.

Mercer's Ms. Magner said passive investment options are attractive to participants for their low fees and their simplicity. “In recent years, sponsors have been offering a tier of passive options to give participants a choice” to compare with actively managed options, she said.

Lower fees also is a big reason more sponsors are looking at collective investment trusts, Ms. Magner said — an observation borne out by P&I data.

Among company plans identifying an investment vehicle, the asset allocation to CITs rose to 54.2% of assets from 50.3%. Mutual funds accounted for 35% of assets vs. 36.5%, while separate accounts represented 10.6% of assets vs. 10.9%.

The greater use of CITs is “not surprising given fee litigation,” Ms. Magner said. “There's more focus on the lowest cost investment vehicles.”

Although CITs are most often offered by the largest plans, “the trend will continue to go downstream” to smaller plans, said Mr. Volo of Cammack Retirement.

Mr. Volo added that sponsors are becoming more cautious in the offering of company stock, especially due to the U.S. Supreme Court's ruling in June 2014 that struck down the legal principle of presumption of prudence — a standard that many plans used in court to defeat challenges when their company stock values fell.

“Those that don't offer company stock won't do so,” Mr. Volo said. “Those with company stock will set limits or freeze it.”

As many sponsors try to reduce their reliance on company stock in the name of asset diversification, P&I found that participants invested $212.9 billion in company stock in 2014, representing 19% of the aggregate assets of the largest 100 DC plans. For 2013, company stock accounted for 19.4% of total assets.

Among other research results, P&I analyzed the most popular money managers in a variety of categories, finding that:

• Vanguard Group Inc., Malvern, Pa., and BlackRock Inc., New York, maintained first and second place as the largest managers of corporate DC assets. First-place Vanguard had $124.7 billion assets under management in 2014, up from $114.4 billion. Second-place BlackRock posted $106.9 billion AUM in 2014, up from $95.5 billion.


• For target-date funds, BlackRock and Vanguard placed first and second in 2014, just as they did in 2013. BlackRock had $30.65 billion in target-date AUM vs. $26.91 billion, while Vanguard had $28.06 billion in 2014 vs. $24.86 billion in 2013.


• Among fixed-income managers, Pacific Investment Management Co. LLC, Newport Beach, Calif., clung to first place - reporting $11.28 billion in 2014, down from $14.95 billion. Second-place BlackRock had $10.96 billion in 2014, up from $8.29 billion in 2013.


• Among equity managers — covering domestic and international categories — Vanguard remained in first place with $79 billion in 2014 vs. $71.63 billion in the previous year. BlackRock repeated a second-place finish with $58.63 billion vs. $53.38 billion.