NEPC’s 2023 DC Plan Trends & Fee survey results were featured in a recent PlanSponsor article which discusses how because target–date funds represent a large and growing share of plan assets, plan sponsors are narrowing their core investment menus. View the article on PlanSponsor’s site here.
“The rising popularity of target-date funds in defined contribution plans has led to a reduction in the number of core menu investment options, according to a new NEPC survey.
After surveying 240 DC plans, of which the average plan had $1.5 billion in assets, NEPC’s 2023 DC Plan Trends and Fee Survey revealed that 97% of plans offer TDFs and that, on average, 47% of plan assets are invested in TDFs.
As a result, the core menu is shrinking. For example, in 2010, when an average of 28% of assets were invested in TDFs, that meant 72% of assets were invested in offerings in the core menu. However, by 2023, assets in TDFs had steadily increased to reach that 47% figure, meaning only 53% of assets are now invested in the core menu, NEPC found. “
. . .
“Bill Ryan, a partner in NEPC and head of its DC team, says the industry has been telling the story that older participants are taking the most advantage of the core menu for a decade, but it may not necessarily be true anymore. As automatic enrollment has become more prevalent, Ryan says, more participants—across all ages—have invested more via target-date funds, which tend to be the default investment.
According to NEPC, close to 30% of plans have fewer than 10 core investment options, and Emma O’Brien, a principal in NEPC, predicts this trend toward streamlining will continue.
‘If you look across the different buckets where we’re breaking out the number of core options that are offered, equities compressed at a much faster rate relative to the other options that are offered, and I think that’s driven by the fact that, historically, there have been multiple flavors of active equity options within lineups,’ O’Brien says.”
. . .
“Target-date funds with systematic distribution allow us to provide a paycheck in retirement, which I call the Batman dilemma,” Ryan says. “[It’s] maybe not the hero that you want, but it’s the hero that you need right now.”
Read the full article on Plan Sponsor’s website here.