A poor economy and rising unemployment rates are making an already difficult defined contribution market even harder for plan providers. Because plan sponsors are occupied with more pressing business concerns in a difficult economic environment, changing or adding a plan provider to their defined contribution plan is not a priority. That has made gaining market share very difficult for many 401(k) providers, say industry observers.

Those factors coupled with the fact that 401(k) assets shrank by $72 billion last year could spell another difficult year for 401(k) providers, said to Josh Dietch, a consultant with Cerulli Associates of Boston. However, it could be worse. While poor performance is eating away at existing assets, fund companies in the 401(k) business have a layer of insulation from the bear market, he said."The reason why they got into the 401(k) business is it annuitizes cash flow on funds," he said. Dietch estimates that plan participants have contributed approximately $40 billion in assets to defined contribution plans year to date, roughly the same amount they did the previous year.

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