Defined contribution plans continue to grow faster than defined benefit plans in both the corporate and public sectors, according to Pensions & Investments' annual survey of the largest U.S. retirement funds.
DC assets in the top 1,000 plans surged to $4.1 trillion as of Sept. 30, 2018, up 10% year-over-year. DB assets, in contrast, grew a more modest 4.4% to $6.91 trillion.
Among the 200 largest retirement plans, the growth disparity between the two types of plans was even greater. DC plans among the top 200 swelled 10.7% to $2.47 trillion while the DB plans in the top 200 grew 4.4% to $5.46 trillion.
Industry observers attribute the faster growth rate of DC plans in large part to the strong stock market through the end of September. Defined contribution plans are heavily invested in equities, unlike defined benefit plans, particularly corporate plans, which tend to favor fixed income, they said.
"Your DC participant on average is invested more heavily in equity than a DB plan, so whatever the difference in those returns, that's going to be one of the differences in the overall growth of the pie," said James Veneruso, a senior vice president and defined contribution consultant in Callan LLC's fund sponsor consulting group in Summit, N.J.
The Russell 3000 index, for example, posted a one-year return of 17.6% through Sept. 30, while the Bloomberg Barclays U.S. Aggregate Bond index fell 1.2% during that period.
The different allocation preferences are reflected in P&I data, which show the top 1,000 defined contribution plans allocated 43.1% of assets to domestic stock, 21.6% to target-date funds, 6.7% stable value, 6.4% international stock, 4.9% fixed income, 12.8% cash and the rest to inflation protection, annuities and other. Defined benefit plans, in contrast, invested 24.8% in domestic stock, 16.4% in international stock, 6.1% in global equity and 26.2% in fixed income. Among the top 200 DB and DC plans, asset mixes were virtually the same as those of the top 1,000 plans.
Overall, defined contribution plans tended to invest heavily in passive indexed equity with the top 200 plans holding $539 billion in the asset class as of Sept. 30, up 14.5% year-over-year, according to P&I data. There was also a significant uptick in target-date funds, which grew 5.4% in the year to $270.8 billion. Custom target-date funds posted especially vigorous growth, climbing 8.8% to $201.4 billion.