#5: Greater Usage of TDFs in Small Plans

Across all plans, the Morningstar report found that 58% of DC plan assets are invested in off-the-shelf target-date funds.

“We do not see big differences between medium, large, and mega plans, but small-plan participants have two-thirds of their assets in TDFs,” the report found. “The greater usage of TDFs in small plans is probably due to the fact that these plans are most likely to use an off-the-shelf TDF as their default investment, while some larger plans may use a custom TDF or separately managed accounts.”

In terms of plan investment vehicles, CITs hold a higher percentage of assets in TDFs than mutual funds. A little under 50% of assets plans held in CITs are in TDFs, but just 30% of mutual fund assets are in TDFs.

To the extent they still use mutual funds, mega plans are much less likely to rely on them for a TDF and much more likely to select a CIT. Just 26% of mega-plan mutual fund assets are in a TDF, whereas 48% of these plans’ CIT assets are in a TDF.

Small plans rely on mutual funds for TDFs, probably because these plans have a harder time attaining the minimum investment size they need to offer a CIT of any kind.

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