In the $8.5 trillion defined contribution plan retirement market in the U.S., workers from service sectors such as finance and health care accounted for about two-thirds ($5.7 trillion) of assets under management, while those from goods sectors accounted for almost all of the remaining one-third ($2.8 trillion), according to 2021 data. The report was produced by ISS Market Intelligence, which, like PLANADVISER, is owned by Institutional Shareholder Services Inc.

The total contributions by the burgeoning service sectors have doubled in the past decade, up from $2.2 trillion in 2011. Service sectors’ market share has increased to 67% of assets in DC plans from 63%, reflecting the shift toward service-focused industries in the U.S., as well as the importance of the sectors in contributing to the massive pool of private workplace retirement plans in the U.S.

“Certain prestigious and well-paid jobs are strongly reflected in the service sectors, which certainly helps boost flows and balances,” said Alan Hess, associate vice president and head of U.S. Fund Research for ISS Market Intelligence, in an emailed response. “Sectors like finance, information and health care were among the highest-ranked industries for assets per participant. Sectors where employees have higher take-home pay will also have higher balances, as those employees can dedicate more of their income to retirement savings.”

Through the 20th century, service jobs, including those in education, finance and health care, accounted for a solid majority of employed American workers, and that share has grown further in the new millennium, according to ISS researchers. According to the Bureau of Labor Statistics, as of the end of 2021, services made up 83.7% of private nonfarm employment. Over the past 10 years, AUM from the service industry counted for a compound annual growth rate in assets of 10%.

Hess also noted that, even with the advantages service sectors have in their share of employment and “prestigious industries,” the pullback due to market downturns in 2020 and 2021 were “strong enough that services were dragged down into experiencing negative flows.”

In 2020 and 2021, net flows into DC plans fell by about $70 billion in service sectors, according to the researchers.

Goods Producers

The other significant sector for DC plan deferrals is the goods-producing sector, despite being a relative minority in terms of employment, according to ISS MI’s research. Goods producers in manufacturing, construction and gas extraction represented 23% of active participants in DC plans at the end of 2021 but made up 32% of industry assets over the same period. Asset growth in goods-producing industry DC plans trailed those in service industries over the last 10 years but still experienced an increase of 8.2%.

“That service sector employees lead DC plan contributions is to be expected, considering that services account for over 80% of private employment,” Hess said. “What I found more surprising was how manufacturing sectors can still account for such a large portion of assets and can do so with a smaller relative population, especially considering how often the role of manufacturing in American can come up in debates around political economy in the U.S.”

Among goods-producing industries, manufacturing made up the bulk of DC activity, accounting for 27% of DC assets at the end of 2021.

Manufacturers also consisted of only 10% private nonfarm employees, indicating a major shift toward DC plans among manufacturing participants. The industry had once seen significant defined benefit adoption, as private unionization led to employers providing private pension plans. ISS Market Intelligence reported that leading manufacturers, taking advantage of their long history, have gathered participants across generations and transitioned many to DC investments as DB plans have been frozen or dropped.

From Farm to Retail

The ISS Market Intelligence research showed farming jobs made up $35 trillion in AUM as of 2021, and the government sector rounded out the list at $3 trillion in AUM, both less than 1% of the total market. Unlike goods and services sectors, these remained flat in 2021 asset flow, instead of facing negative net flows.

When drilling down to the participant level, those in finance and insurance had the highest average assets per participant at $178,000. Those workers were followed by manufacturing employees, with $174,000 in average assets, and those in the information sector, with $173,000 average participant savings.

The bottom two in terms of average participants’ assets were health care and social assistance, with average assets of $77,000, followed by retail workers, with an average balance of $41,000 in DC savings.

The findings from ISS Market Intelligence were released in the latest edition of its “Windows into Defined Contribution” series. The Q1 2023 edition looked into the DC market by sector, examining the divide between services and goods industries throughout the last decade.