Not-for-Profit/Governmental DC Plan Market Growing

The not-for-profit (NFP)/governmental defined contribution (DC) segment represents approximately 8% of the total U.S. retirement market, a report from Cerulli Associates says.

This sector includes the Federal Thrift Savings Plan (TSP), 403(b), 457, and 401(a) markets. Total NFP/governmental DC plan assets are expected to grow at a compound annual growth rate (CAGR) of 7% to reach $2.4 trillion by 2020. According to “U.S. Not-For-Profit & Governmental Defined Contribution Plans 2016: Addressing the 403(b), 457, and 401(a) Markets,” Cerulli expects more asset growth in the health care sector and higher education sector of the 403(b) market.           

The 457 plan market divides into two primary categories: governmental 457(b) plans and non-governmental 457(b) and 457(f) plans. The governmental 457(b) market is the larger of the two, as these plans are often associated with states or municipalities and sometimes function as an employee’s primary retirement savings vehicle.

Government organizations are primary users of the 401(a) plan type, which is typically offered as one of the employee’s mandatory retirement savings plan options (e.g., participate in the 401(a) or DB plan). A 401(a) plan is typically supplemented with optional retirement plans such as a 457 or 403(b) plan (depending on participant eligibility).

Cerulli found nearly two-thirds of 403(b) plan sponsors engage an adviser or consultant, and survey results suggest that this number could be on the rise. In the $25 million to $99 million and $100 million and greater plan asset segments, some plan sponsors intend to hire an adviser or consultant in the next 12 months, suggesting a desire for more guidance in managing the 403(b) plan.

The multi-vendor 403(b) environment is still strong. In a 2016 Cerulli survey of 403(b) plan sponsors, more than half of respondents cite participants’ preference for having a choice among vendors as the primary reason for the arrangement.