Pension plan asset flows can influence plan decisions

Pension plan sponsors face a combination of challenges that are interrelated and could affect their plans: soaring inflation, market volatility, the possibility of large portions of assets leaving the plan due to of the so-called “big quit”, as well as the growing number of baby boomers retiring.

The swelling of participants’ account balances due to previous years’ stock market gains may have masked the urgency for plan sponsors to bolster their plans against the possibility of asset losses. The time to act is now, according to an industry expert.

“While not well publicized, there has been now, and for several years, more money being distributed from plans than paid into plans,” says Fred Reish, partner and president of the ERISA services team. finance at Faegre Drinker. “It’s not easy given the big gains in the stock markets over the past decade. But one day the market will go down and that dynamic will be exposed.”

Prepare for the exodus

There are other consequences beyond plan curtailment when assets exit, says Katie Hockenmaier, director of U.S. defined contribution research at Mercer. Larger plans have greater purchasing power and can negotiate lower costs with asset managers and archivists.

“If you see really large cash outflows, you might stop qualifying for certain share classes or certain fee agreements or vehicles,” Hockenmaier says. “It can also impact their record-keeping relationship – if they see a certain number of participants or a certain amount of assets withdraw from the plan – which could impact the overall fees they can pay or pass on to participants.”

The size of the plan can impact services, as “some archivists have service slices for certain size clients and that can effectively downgrade them to a lower group,” she explains.

It’s too early to draw big conclusions about the plan’s asset impacts from COVID-19’s historic workforce and economic upheaval, as well as more recent declines in inflation and stock markets, says Hockenmaier. However, she notes that some plan sponsors in the manufacturing and technology sector are in asset outflow situations.

“There is a part of the industry that is in this position. I wouldn’t say quite the majority of defined contribution plans yet, but there are a number of plan sponsors in that situation,” says Hockenmaier. “They tend to be concentrated in certain industries that might start to downsize.”

Hockenmaier, who adds that she hasn’t seen any significant impacts on plans for the big quit, says she will track multiple data points to study trends in assets leaving plans, including any changes in the number of participants in a plan from quarter to quarter, assets, flows and working activity. “When we get to the end of 22, it will be really much easier, even in the middle of this year, to see what impact is being made on the plans,” she says.


Tracking asset flows can inform pension plan sponsors of any challenges they might have, says Alexa Nerdrum, managing director, retirement, at Willis Towers Watson. “One thing we’re finding is that the pandemic really didn’t lead to some of the promoters of mass distribution plans and others were waiting,” she says.

According to Nerdrum, around 2% to 4% of participants made withdrawals from their retirement account after the passage of the Coronavirus Aid, Relief and Economic Security Act – or CARES – which provided special rules. distribution and lending for pension plans and individual retirement accounts. Meanwhile, savings rates and plan balances have continued to grow, she says.

To retain assets in the plan, encourage savings and attract talent, plan sponsors have enhanced plan design features by adding lifetime income options and the ability to repay student loans and save for the event. emergency. Plan sponsors are changing focus because “attraction and retention has become a big issue lately for many plan sponsors, [and] many of our customers,” says Nerdrum.

Plan sponsors can use data on which groups of individuals take out hardship loans and withdrawals, and who does or does not maximize their deferrals, to learn what plan design features will meet participants’ needs, Nerdrum says. .

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