Developments in the Defined Contribution Market

New Funds and New Investment Vehicles in the US Market
by Alexander Camargo, December 2, 2011
Industry Trends
North America


The defined contribution market has made a comeback. After a trillion-dollar decline in assets in 2008, defined contribution assets reached record levels in 2010. With the fastest growth rates of any retirement plans, DC plans are gaining market share of US retirement assets.

In a new report, Developments in the Defined Contribution Market: New Funds and New Investment Vehicles in the US Market, Celent examines the retirement landscape in the United States. The defined contribution market can be sliced and diced in various ways: it can be broken down by plan type (401ks, Keoghs, etc.), by fund type (hybrid, target risk, target date), and also by investment vehicle (separate accounts, mutual funds, collective investment trusts). This report looks at the defined contribution (DC) market using each of these perspectives, highlighting major changes.

Historically, mutual funds have been the investment vehicle of choice in the defined contribution market, with over 50% of assets held in mutual funds. However, over the past decade, new investment vehicles have continued to gain exposure in the DC market. These vehicles include: separate accounts, collective investment trusts, variable annuities, and company stock. This report outlines the evolution and growth of these investment vehicles.

“The defined contribution market is undergoing several developments. One of the most interesting is the growth of collective investment trusts,” says Alexander Camargo, Celent Analyst and author of the report. “Even though these vehicles have been around for a long time, it’s as though plan sponsors are discovering some of their regulatory and cost benefits for the first time.”

This report begins with an overview of the US retirement market, focusing on the growth of the defined contribution market over the past five years. The following section describes the evolution of this market, focusing on types of plans, growth rates, drivers of adoption, and significant market players. A breakdown of the defined contribution market by investment vehicle follows. This section also highlights growth projections for each vehicle, outlining major drivers that will affect growth. Following this section is a look at the target date fund market, and how demand for innovation has led to developments in this market. The last section describes some of the major developments that Celent expects to see going forward.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

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Table of Contents

Executive Summary





Types of Defined Contribution Plans


Developments in the Defined Contribution Market



Growth in the Market



Growing Concentration and Fast Risers



Reasons and Projections for Growth


Investment Vehicles



Projections for Growth (by Investment Vehicle)


Target Date Funds and Demand for innovation



What Are Target Date Funds?



The Financial Crisis Challenges Benefits of TDFs



Sizing the TDF Market



Custom Target Date Funds


Going Forward


Leveraging Celent’s Expertise



Support for Financial Institutions



Support for Vendors


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