Assets in defined contribution retirement plans climbed to a new year-end high last year, thanks almost entirely to stock market gains.
At the end of 2020, U.S. institutional tax-exempt assets rose 11.9% to $8.88 trillion from $7.94 trillion in 2019, according to Pensions & Investments' annual survey of U.S. institutional money managers.
Internally managed defined contribution assets rose even more, jumping 14.7% to $7.95 trillion.
The robust growth might have been stronger were it not for the pandemic, which stymied new asset flows throughout the year. The outbreak of COVID-19, along with last year's market volatility, caused plan participants to either pull money out of their retirement plans or stay the course and not contribute more, industry observers said.
"The biggest driver for the increase was asset appreciation as actual net flows — due to the impact of the COVID-19 — were modest," said Jim Danaher, a principal and investment consultant in the wealth practice at Buck Global LLC in St. Louis.
David Blanchett, Lexington, Ky.-based managing director and head of retirement research in the DC solutions group at QMA LLC, PGIM Inc.'s quantitative equity and multiasset specialist, also didn't see much in the way of net new flows, explaining that money in and out of retirement plans have been "pretty much" equal for the last five to 10 years. "I didn't see a large net change," he said of last year's asset flows. "It would have been more positive had we not had the COVID crisis."
Some observers noted increased hardship withdrawals from plans at the onset of the pandemic. "Many plans observed heavy distribution activity in the first and second quarter of 2020 due to the liberalization of withdrawal policies under the CARES Act," Mr. Danaher said.
The 11.9% upswing in total defined contribution assets noted in P&I's survey was in line with broad market returns. U.S. equities, as measured by the Russell 3000, and non-U.S. equities, as measured by the MSCI ACWI ex-US, climbed 21% and 11% in 2020, respectively. Meanwhile, fixed income, as measured by the Bloomberg Barclays U.S. Aggregate Bond index, rose 7.5%. Non-U.S. bonds, as measured by the FTSE WGBI ex-U.S., jumped 10.8%.
Equity accounted for the greatest share of assets in defined contribution plans. The top 100 DC managers had 67.1% of assets in equities managed internally, essentially unchanged from 2019. Fixed income, the next largest asset category, edged down almost 2 percentage points to 16.8%, while stable value rose 2.3 percentage points to 8.2%.