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Proprietary Funds Dominate Menus, Not Assets

Most 401(k) plans offered investment menus that included options proprietary to the plan’s recordkeeper, but proprietary investments accounted for a smaller share of total 401(k) assets, according to The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2014.

While nearly two-thirds (65.4%) of 401(k) plans included investment options proprietary to the plan’s recordkeeper in their investment lineups, those investments accounted for a little more than one-quarter (26.1%) of total plan assets, according to the report. Larger plans tended to be more likely to include proprietary funds in their investment lineups, although this effect was reversed for the largest plans (those with more than $1 billion), which included proprietary funds at about the same rate as the smallest plans (those with $1 million to $10 million).

For all plan size groups with less than $1 billion in plan assets, proprietary funds accounted for between 32% and 38% of plan assets, while participants in plans with more than $1 billion in plan assets held a lower share of their assets (18.9%) in proprietary funds.

Index Actions

In 2006, 79% of 401(k) plans in the BrightScope database offered index funds and 17% of plan assets were invested in such products, but the use of index funds increased to 89% of 401(k) plans and 29% of assets in 2014. While the percentage of 401(k) plans offering index funds increased for almost all plan asset groups, smaller plans experienced larger increases.

That said, larger plans were more likely to offer index funds than smaller plans. For example, more than 95% of 401(k) plans with more than $50 million in plan assets offered index funds in their plan lineups in 2014, compared with 83.9% of 401(k) plans with $1 million to $10 million, according to the report. Index funds also generally claimed a greater share of assets in larger 401(k) plans than in smaller plans.

In 2014, the average 401(k) plan offered 28 investment options (22 if target-date offerings were counted as a single fund), of which about 14 were equity funds, four were bond funds, and seven were target-date funds, based on analysis of the audited Form 5500 reports in the BrightScope Defined Contribution Plan Database for nearly 30,000 401(k) plans. Nearly all plans offered at least one equity and bond fund, and about three-quarters of plans offered a suite of target-date funds. Funds include mutual funds, collective investment trusts, separate accounts, and other pooled investment products.

On average, 401(k) plans offer 22 options (if target-date offerings were counted as a single fund), ranging from 20 investment options for plans with more than $100 million to $1 billion in plan assets to 23 investment options for plans with $50 million or less in plan assets.

Menu Drivers

Domestic equity funds, international equity funds, and domestic bond funds were the most likely investment options to be offered in 401(k) plans in 2014. About three-quarters of plans offered target-date funds, and about two-thirds offered non-target-date balanced funds. About half of 401(k) plans offered money funds and 7 in 10 offered guaranteed investment contracts (GICs). More than 60% of 401(k) plans had other investments, which include individual stocks (including company stock) and bonds, and more than 30% of 401(k) plans had international bond funds in their investment lineups.

In 2014, equity funds held the largest share (43.5%) of 401(k) assets in the BrightScope database, with the bulk invested in domestic equity funds. Balanced funds held the next largest share with 20.9% of 401(k) plan assets, which was divided between target date funds (17.4% of assets) and non-target-date balanced funds (3.5% of assets). Other investments (which include company stock) followed with 16.7%, followed by GICs (8.9%), bond funds (mostly domestic) (7.8%), and money funds (2.1%).