A feature article in the latest NAPA Net the Magazine explores results of the Plan Sponsor Council of America’s inaugural 2020 Plan Investment Trends survey that reveal new insights about the role of fixed income in retirement savings plan investment menus.
In the wake of near-record volatility in equity markets during the first six months of 2020, retirement savings plan investment fiduciaries and the financial professionals that advise them are bound to be hyper-focused on how each Core investment performed. Both parties will also likely re-evaluate the adequacy of their Core investment structure. Increased due diligence is indeed warranted as the traditional roles of key asset classes continue to evolve to meet the shifting demographics of plan participants. Our inaugural 2020 Plan Investment Trends survey provides supporting evidence for these trends and reveals new insights about the role of fixed income in retirement savings plan investment menus.
Plan participant needs encompass a wide variety of risk, return and retirement needs. Retirement savings plan menus are generally designed to provide an array of investment options that enable participants to construct a suitable, well diversified portfolio.
Fiduciaries have long understood the need for a diversified menu of investment options. However, regardless of plan size, plan provisions or diverse participant populations, the typical 401(k) plan has three to four times as many equity options as fixed income choices. Data from the Plan Sponsor Council of America’s Annual Survey of 401(k) and Profit-Sharing Plans confirms that while the number of options has expanded over time, that ratio has remained unchanged through many market cycles.
Asset ‘Class’
Among the fixed income options regularly incorporated in a Core investment structure, survey data show that advisors most frequently recommended stable value (84.3 percent), intermediate/core (74 percent) and multi-sector (55.9 percent). Stable value (67.4 percent) and bond index (61.1 percent) funds dominate actual plan investments. While core bonds remain an integral component in most plan menus, they may no longer be a “one-size-fits-all” solution given the historically low government yields around the globe and the new opportunities presented by wider credit spreads.
Read the full article here.
