COVID-19 expected to lead to lower sales of defined contribution plans

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Sales of defined contribution plans are expected to take a hit in 2020 as the coronavirus pandemic has prompted many employers to postpone or cancel the competition of their plans.

A survey of archivists by the Secure Retirement Institute and the Retirement Leadership Forum found that DC plan sales are expected to be significantly lower in the second and third quarters of 2020, compared to pre-COVID-19 sales forecasts. The study shows archivists are optimistic that fourth-quarter sales will rebound slightly, but remain below pre-pandemic expectations.

Sales expectations in the second quarter of 2020 were down 21% from pre-COVID expectations and down 22% in the third quarter. In the fourth quarter of 2020, according to the survey, sales are expected to decline by 14%.

The survey polled 14 companies, representing about 23% of assets held in the United States, to find out what gatekeepers expect to happen to the DC market in the wake of COVID-19.

“This forecast matches what we saw during the last financial crisis over ten years ago. According to SRI research, the formation of new diets decreased by almost 40% between 2008 and 2010, ”said Deb Dupont, associate executive director of the Secure Retirement Institute. “During the same period, the sales activity of existing plans (takeovers) increased slightly. If the current COVID-19 crisis translates into a similar pattern, we would expect a moderate drop in sales, the market for newer plans / smaller plans to be hit the hardest. “

The biggest changes in the market as a result of COVID-19 will be felt in the small plan market, the survey suggests. Registry holders focusing on larger plans, those with $ 500 million or more in assets, expect their sales to be 5 to 10 percentage points closer to target than those targeting smaller plans.

The report suggests that advisers focusing on the small plan market may have faced larger business disruption, while larger plans tend to be more directly sold or sold by consultants, and therefore disruptions are less consistent.

Additionally, the person who manages the DC plan in small businesses is more likely to be responsible for areas other than the pension plan – and more likely to be busy with the challenges of today’s environment.

In addition, according to the study, about a third of sales in the small plan market are newly formed plans. Given the business disruption caused by the pandemic, most small employers without a DC plan in place are unlikely to add one until business normalizes.

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