Top 1% of Retirement Plans Hold Huge Majority of 401(k) Assets

Just-released analysis by Judy Diamond Associates shows that the top 1% of plans hold 71.1% of all 401(k) assets — giving large employers an “outsized influence” on the retirement market, according to managing director Eric Ryles.

Judy Diamond’s research found that while there were approximately 500,000 active 401(k) plans in the fourth quarter of 2013, with a collective $3.5 trillion in total assets, nearly three-quarters, or $2.54 trillion, was controlled by the top 1% (5,000 companies).

The other 99%, or 495,000 companies, of all 401(k) plans nationwide control only 29% of the total assets.

Judy Diamond’s research showed that fewer than two-tenths of 1% of 401(k) plan sponsors are responsible for fully half of the nation’s 401(k) retirement plan assets. “That’s only 630 very large companies controlling $1.75 trillion in assets,” Ryles says.

Indeed, one “needn’t look any further than the rise of target-date funds to see the influence of the top 1%,” Ryles told ThinkAdvisor. “The Pension Protection Act of 2006 allowed 401(k) plans to embrace target-date funds” as a qualified default investment alternative (QDIA), “and early adoption by the 1% led to an explosion in popularity.”

The investment options that large plan sponsors choose to make available to their participants “set the agenda for smaller companies to follow suit,” he says.

According to Ibbotson, during Q4, flows into target-date funds had a sizeable rebound, nearing $13 billion compared with $2.3 billion in the earlier period. Total assets held by investors in target-date funds were nearly $621 billion, a 28% jump from the end of 2012. For the 2013 calendar year, the average total return for target-date funds was a respectable 16.3%.

But Joni Tibbetts, vice president of retirement and investor services at the Principal Financial Group, said of the Judy Diamond findings that "whether big or small, plan sponsors have a fiduciary duty to design retirement plans and select and monitor investments based on the best interests of their participants."

Even among big plans, she says, "there will be differences based on the unique needs of each plan’s demographic. In our experience with small to medium-size plans, we know they watch trends but ultimately decisions are based on their business objectives and the best interests of their participants."

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Tibbetts adds that service providers and financial professionals "who work with the other 495,000 plans — which still hold $1 trillion in assets—understand how to provide the services needed for all plan sizes. Those numbers: $1 trillion in 495,000 plans — which hold a significant share of participants — mean those other plan sponsors have an important impact as well."

Washington-based Judy Diamond, a sister company to ThinkAdvisor, based its research on the most recent 401(k) plan disclosure documents released by the Department of Labor, which is available in Judy Diamond’s Retirement Plan Prospector database.