Fixed Income in DC Plans Survey: A Discussion of Key Findings and Implications

Janus Henderson partnered with the American Retirement Association (ARA) to survey roughly 200 retirement plan financial professionals and nearly 100 plan sponsors on how they select and review fixed income options. Retirement Director Ben Rizzuto discussed some of the survey’s key findings with two retirement industry veterans from ARA, including the results they found surprising and what they see as the most important implications for plan participants.

The pandemic – and the volatility it led to – has pushed many investors to take a serious look at their portfolio holdings. Retirement plan sponsors are faced with the same challenge, and I suspect investment committees are also upping their level of due diligence to review fund performance and make sure their plan menus continue to meet participants’ needs.

To explore how plan sponsors and financial professionals are selecting and reviewing their fund offerings, Janus Henderson and the American Retirement Association (ARA) conducted a survey of nearly 100 plan sponsors representing a range of plan sizes and industries and (separately) 200 retirement plan financial professionals primarily focused on 401(k)s. The survey specifically focused on the due diligence process around fixed income funds, which have gained importance as an increasing number of plan participants approach retirement.

I recently sat down with Nevin Adams and Jack Towarnicky – two industry veterans from ARA – to dig deeper into what the survey data revealed and what it could mean for the future of retirement plan menus. Following are some highlights from our discussion.

Ben Rizzuto: What were your initial thoughts when you saw the data?

Nevin Adams: I was expecting to see a variation between financial professional and plan sponsor perspectives. And while there certainly were some disparities, the gap was smaller than I expected. I also felt the prominence of stable value funds in financial professional recommendations helped reinforce the notion I already had prior to the survey, which is that many FPs still view fixed income selections primarily through the lens of preserving principal, rather than focusing on diversification.

Jack Towarnicky: One thing that stood out to me was the continued dominance, in terms of number and asset allocation, of equity-related investment choices. This is particularly striking when you consider the significant demographic shifts and changes in the retirement savings market that have taken place since the Pension Protection Act of 2006 and the Global Financial Crisis.

Rizzuto: Were there findings that surprised you?

 Adams: I was struck by the frequency with which financial professionals and plan sponsors said they replaced fixed income options that had been put on watch lists, not to mention the correlation between that frequency and the presence of a fiduciary investment advisor. You can’t help but wonder if, without that support, plan sponsors are more tolerant or less willing to make a change – or perhaps they simply aren’t aware of the need.

On the financial professional side, there were some apparent disconnects in selection criteria for fixed income options. For example, “quality” was cited as a key factor, but the underlying characteristics that most fixed income experts associate with quality – such as correlation to equities and maximum drawdown – were barely acknowledged. One suspects that risk of principal loss is being used as a proxy for “quality,” but that means plan sponsors and FPs are basically relying on someone else, such as a ratings agency, to make that determination.

Towarnicky: I was surprised by the lack of change in core fixed income investments. I think it’s important to remember that today’s 401(k) looks nothing like its predecessors. And I think it’s safe to assume that future defined contribution plans won’t bear much resemblance to current 401(k)s, particularly as financial wellness “along the way” to retirement gains importance, as well as a greater focus on decumulation.

Increasingly, plan sponsors are focused on meeting the needs of all participants – including active workers who are participating, those who are eligible but do not participate, vested participants, retirees and beneficiaries. More and more, plan designs are encouraging asset retention – including asset aggregation or consolidation – and introducing provisions designed to facilitate rollovers, both at hire and post-employment. Participant demographics have also evolved: We now have as many as six generations in some plans, ranging from Gen Z all the way through the Greatest Generation – a span of eight decades. And even this huge range of ages understates the diversity of needs among participants once we consider the host of other variables such as family makeup, financial standing, employment status and goals.

Rizzuto: Were there any findings that didn’t surprise you?

Adams: I was not surprised by stable value funds continuing to be the predominant fixed income option, which I think illustrates the traditional view or role of fixed income in many plans – again, that focus on capital preservation. And while capital preservation is certainly important, I feel the narrow focus on this aspect showcases some of the shortfalls in financial professionals’ and plan sponsors’ understanding of the role of fixed income, particularly in times of extreme volatility, and especially as an increasing number of workers approach retirement age.

Rizzuto: One of the key findings that came out of the research is that equity funds outweigh fixed income three to one in most retirement plans. While this wasn’t exactly a surprise, that sustained gap brings to mind the question of whether plan participants can create a truly diversified portfolio with so few fixed income options. With that in mind, what do these findings mean for participants?

Towarnicky: I think the clear message for participants is that a diversity of choices – both equity and fixed income – is necessary to meet their needs and pursue whatever goals they have for retirement. Given plan sponsors’ focus on minimizing risk and their tendency to avoid change, diversification of participants’ retirement assets will increasingly need to consider the allocation of all household retirement assets, including their 401(k), IRA, Social Security and their spouse’s retirement savings.

Adams: I would add that participants are largely dependent on their retirement plan menus to provide a prudent selection of diverse investment options. And if participants don’t have high-quality options available to them, as well as a diverse array of choices, they can’t build a prudent diverse portfolio.

For plan sponsors and retirement plan financial professionals looking for more guidance on reviewing and selecting fixed income options, view our Rethinking Fixed Income in DC Plans resources.


Janus Henderson is not affiliated with the American Retirement Association.

Rethinking Fixed Income in DC Plans

To explore an apparent lack of diversification in fixed income funds, we partnered with PSCA and NAPA to learn more about current plan menu designs and investment trends.

Learn More
Rethinking Fixed Income in DC Plans