The ongoing challenges of active management were reflected in 401(k) plan fund changes in 2025, as concentration in large-cap equities and poor performing quality small-cap equities forced some plan sponsors to replace funds, according to defined contribution plan consultants.
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Mikaylee O’Connor, partner and head of defined contribution solutions at NEPC, said among their clients, active growth funds have faced more challenges than active value funds, because of the hurdles of the extreme concentration of the growth index with the dominance of tech stocks.
“(Retirement plan) committees really have responded in different ways. I will say some have moved to passive large-cap growth while retaining active largecap value, and I think that’s a recognition that this has been one of the top performing asset classes, and so they’re reevaluating how (to) actually deliver that to participants,” O’Connor said.
Others, she said, have moved to eliminating any style-specific large-cap funds and simply moved to a passive core allocation.
“I think the main theme there is that committees are revisiting their menu structures. We actually did a little bit more digging into this, and in the last five years, approximately 30% of our clients have made structural changes to their large-cap lineup,” such as swapping out active managers, she said.
“So it’s not just in the last year, but over the last five years, we’ve seen this trend of making some sort of (large-cap) change.”
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