Money managers are gearing up for a busy year in the defined contribution plan market, with new assets expected to come up for grabs in Europe.
Sources said they are preparing to help corporations move participants to new or existing DC plans from defined benefit funds that have grown unaffordable for the plan sponsors. In addition to bolstering their DC teams, consultants and money managers are focusing on improving their offerings by adding broader capabilities, such as financial wellness.
The reason for their interest is clear. More European corporations have decided to freeze their DB funds in recent months, including British Airways PLC and KLM Royal Dutch Airlines. The U.K. airline is moving participants from its £15.5 billion ($21.5 billion) pension plan to a new DC plan that will launch in April, while also replacing the existing defined contribution £600 million British Airways Retirement Plan. KLM last month transferred its defined benefit plan participants out of its €1.5 billion ($1.8 billion) defined benefit plan, into a new DC plan.
The U.K. and the Netherlands were highlighted by sources as particularly attractive destinations for increased DC business, with ongoing regulatory shifts set to speed up the process of moves to DC plans.
The U.K. Pensions Regulator annual data report, published Jan. 25, showed £5.4 billion was accrued in defined contribution plans last year, an increase of more than 21% from the prior year. In 2018, these assets are expected to grow even more, with a combined employer and employee contribution set to increase in April.
For some corporations, new DC plans or a transfer of participants into existing plans are the only solutions to addressing increasing regulatory burdens and deficits.
In the Netherlands, regulations mandated a consolidation of sponsor retirement assets in 2016 to make hybrid DB-DC plans that are more affordable and have scale. New reforms aim to eliminate defined benefit programs starting in 2019, boosting DC plans even more.
Similarly, in the U.K. auto-enrollment review and transaction cost regulations issued last year put pressure on plan sponsors to focus on improving the quality of their DC plans as additional contributions enter these plans this year, sources said. The U.K. auto-enrollment regulation passed in 2012 stated combined mandatory contributions by employees and employers will increase in two stages. The first increase — to 5% of salary from 3% — is scheduled in April.
"The regulations ... have made plan sponsors acutely aware of increasing costs and governance overheads involved in running their company pension scheme,'' said Brian Henderson, partner and director of consulting at Mercer LLC in Edinburgh. "These employers have finally said they (have) had enough."
That, in turn, means money managers could be set to enjoy a prosperous year with more assets to play with and a larger pool of participants to serve, sources said. They added that DC providers have been preparing by adding staff across the board in business development and administration functions.
SEI Investments Co., for example, appointed Steve Charlton in November as managing director defined contribution Europe, Middle East and Asia. He joined from Vanguard Group Inc., where he was defined contribution proposition manager, Europe.
In addition, consultancy firm Barnett Waddingham is adding to its 35-member team with five consultants in anticipation of DC asset inflows in the coming year, said Mark Futcher, partner and head of DC and workplace wealth in London. Barnett Waddingham has more than £1 billion in assets under advisory.