Target date funds continue to be the turnkey solution in defined contribution plans—a continuing trend that is illustrated in the 2021 Defined Contribution (DC) Plan Trends and Fee Survey released Feb. 15 by NEPC, LLC, one of the nation’s largest independent, research-driven investment consulting firms.
In 2011, 28% of respondents had plan assets invested in TDFs compared to 44% in 2021, the survey shows. 95% of 2021 respondents are using TDFs as the plan default, reducing the importance of the Core Menu.
The survey also shows that menus are moving toward index funds: 38% of plans currently offer index target date funds and 70% of those plans offer a “tier” of three or more index funds in their core menu. The median percentage of plan assets invested in index funds is 40%.
“Investment managers are now evolving their TDF offerings to include payout features or spending guidance”
Bill Ryan, NEPC
“The significant uptake of target date funds is helping to transform the market in meaningful ways,” said Bill Ryan, Partner and NEPC’s Head of Defined Contribution (DC) Solutions. “Investment managers are now evolving their TDF offerings to include payout features or spending guidance.”
This is the 16th annual version of the survey, which examines current plan investment trends, features, and innovations across major sectors, and how these plans have evolved over the years. Respondents to the 2021 survey represent $230 billion in aggregate assets and 1.6 million plan participants. The data helps show how increasing market pressure is transforming DC plan strategies.
“Because the Great Resignation placed immense stress on the retirement ecosystem, flexible features and purpose-driven investment options are now deal-breakers and deal-makers,” Ryan said. “This survey helps illustrate how plan sponsors are looking for consultation beyond simple ESG negative screening and TDF ‘best practices.’ Plans are looking for partners to advise them on new opportunities in 2022 and beyond.”
While the survey foreshadows how impending U.S. regulatory updates could lead to increased adoption of retirement income and ESG investment options in 2022, the data from 2021 highlights current gaps in guaranteed lifetime income and ESG menu options. While nearly all respondents currently offer the makings of a “retirement tier,” most plans lack an option providing guaranteed lifetime income.
NEPC’s Defined Contribution (DC) Practice Group will discuss the survey’s findings, including an analysis of plan fees, during a webinar on Thursday, February 17, 2022. Those interested in hearing how DC consultants are advising plans to address emerging opportunities can register for the webinar here.
Full results of the 16th Annual Defined Contribution (DC) Plan Trends and Fee Survey can be downloaded here.
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