Rethinking Fixed Income in DC Plans

2020 Plan Investment Trends

Plan fiduciaries have long understood the need for a diversified portfolio. However, fixed income has received neither the attention nor prominence of equities in most defined contribution menus. Research shows most plans offer three times as many equity options as fixed income options.

To explore this apparent lack of diversification, Janus Henderson partnered with Plan Sponsor Council of America (PSCA) and the National Association of Plan Advisors (NAPA) to survey plan sponsors and financial professionals regarding current plan menu designs and investment trends.

Key Findings:

 

  • Equity options outnumber fixed income options by approximately 3:1 on respondent plan menus, regardless of plan size. Financial professionals surveyed indicated they typically recommend three fixed income options.
  • Among the types of fixed income options typically recommended to plan sponsors, financial professionals were most likely to cite stable value fund (84.3%), intermediate/core (74%) and multi-sector (55.9%).
  • When selecting fixed income options, plan sponsors and financial professionals frequently consider the same demographic criteria — risk tolerance (44.3% among sponsors, 56.3% among financial professional) and retirement age (34.6% among sponsors, 40.8% among financial professionals).
  • While nearly three-quarters (71.9% ) of financial professionals incorporate a style box in their Core equity recommendations, fewer than four in ten (39.9 percent) do so for fixed income investments.
  • When it comes to recommendations regarding fixed income options, risk/reward (94.6 %), performance (98.5%), fees (95.1%) and quality (92.0%) dominate financial professionals' thinking as “essential” or “preferred” factors.

Fixed Income in DC Plans: A Tool Kit for Striking Balance

A resource to support retirement plan financial professionals' due diligence in evaluating and selecting fund options for the fixed income portion of defined contribution plans.

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