Boomer Retirements Likely to Boost IRA Share of Retirement Market

January 27, 2012 (PLANSPONSOR.com) - Total asset levels in the U.S. retirement market have grown 9.6% from 2009 to 2010, totaling $15.8 trillion as of end of year 2010.

Cerulli Associates estimates total retirement markets to grow modestly (around 1%) to $16 trillion in 2011 with continuing market recovery, and will total nearly $22 trillion in 2016, according to the firm’s annual analysis of the retirement landscape. Total IRA assets represent 29.7% of total retirement market assets currently, and as large defined contribution (DC) plan rollovers continue to fuel asset levels, IRAs will encompass 33% of the total retirement market by 2016.   

“The decisions Baby Boomers make regarding DC plan balances as they enter retirement continue to greatly impact DC and IRA balances. While much of the industry has discussed in-plan retirement income solutions, few of these solutions have been implemented by DC plans. Since there has been little to entice Baby Boomers to stay in-plan, they continue to roll large balances into IRAs,” commented Alessandra Hobler, analyst in Cerulli’s retirement practice.    

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The research explains that without action to prevent these distributions, rollovers will continue to fuel IRA assets, furthering their significant market share of the total market, beyond 2016.  

The major addressable segments of the DC market: 401(k), 403(b) and 457 are expected to total just over $4 trillion in 2011. The report said 403(b) markets are growing solidly propelled by new regulations and opportunities in healthcare markets.  

Cerulli also found: 

• Rollover dollars are split 65/35 between adviser-assisted and self-directed accounts, and  

• Among advisers, DC distribution is narrowing to specialists while the amounts these groups control in terms of assets is increasing. 

DC markets are buoyed by the continually simplified process of saving for retirement with features such as automatic enrollment, auto escalation and simplified investment options such as target-date funds. On the other hand, the shift away from private defined benefit (DB) plans will continue to decrease its market share. However, increased use of liability-driven investing (LDI) strategies is putting money into motion for asset managers, which presents interesting opportunities, Cerulli said.  

For more information on the report, contact CAmarketing@cerulli.com.

Bill Would Allow Alaska Public Employees to Switch to DB

January 27, 2012 (PLANSPONSOR.com) – A bill that will allow Alaska public employees to choose between a 401(k)-like retirement account or a traditional pension is being considered in the state legislature.  

According to The News Tribune, the bill, SB121, under the proposal, current employees who switch to the pension plan won’t automatically be entitled to credit for all the time they’ve worked; an actuarial calculation would determine that. If there’s a gap, those employees can create an indebtedness to make up any shortage, up to the actual years of service. It would be up to the employee—not the system—to bridge the gap.

State Senator Bill Wielechowski, a co-sponsor of the bill, said the goal is to have the measure be as “revenue-neutral” as possible, so as not to cost the system any more. A fiscal note is pending.

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The measure was heard by the Alaska Senate State Affairs Committee. At least half of the Senate signed onto it.

The articles states that there are an estimated 13,000 employees between the public employees’ and teachers’ retirement systems. Approximately 60% who are currently in defined contribution programs are expected to switch if the bill passes. An estimated 80% of new hires are expected to choose a defined benefit.

There would be a 90-day window in which to make a decision on which option to take. 

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