Practice Management
In the midst of historic market volatility, a new survey of retirement plan sponsors and retirement plan advisors reveals gaps in focus—and perception—about the role of fixed income investments in a fully diversified 401(k) menu.
The new survey—sponsored by Janus Henderson Investors, conducted jointly by the Plan Sponsor Council of America (PSCA) and the National Association of Plan Advisors (NAPA)—found that equity options outnumber fixed income by approximately 3:1 on plan menus, regardless of plan size.
Moreover, while nearly three-quarters (71.9%) of retirement plan advisors incorporate a style box in their core equity recommendations, fewer than 4 out of 10 (39.9%) do so for fixed income investments.
Among the survey’s key findings:
- Plan sponsors offer an average of 3.7 fixed income options compared with an average of 10.3 equity options.
- When selecting fixed income options, plan sponsors and advisors frequently prioritize the same demographic criteria—risk tolerance (44.3% among sponsors, 56.3% among financial professionals) and retirement age (34.6% among sponsors, 40.8% among financial professionals)—but largely ignore key aspects such as gender, education, and participation in a defined benefit plan.
- Risk/reward (94.6%), performance (98.5%), and fees (95.1%) dominate the focus of advisors as “essential” or “preferred” factors in recommending fixed income options.
- Stable value (67.4%) and index (61.1%) funds dominate plan sponsors’ core fixed income investments.
- While a third (34%) of retirement plan advisors said the education and support they receive from asset managers on fixed income investments is “outstanding,” 14.4% said it needs improvement—more than twice the%age (6.2%) cited regarding equity investments.
PSCA and NAPA, with sponsorship by Janus Henderson Investors, surveyed plan sponsors and retirement plan advisors (separately) between Jan. 21 and Feb. 21, 2020, regarding current plan menu designs and investment trends. The survey responses were obtained as various equity market indices were still climbing to record levels —the S&P 500 and NASDAQ composite rose to record highs on Feb. 19, 2020 and the COVID-19-driven declines started the very next day.
Responses were received from nearly 100 plan sponsors representing a wide range of plan sizes and industries, and separately from 200 retirement plan financial professionals who are primarily focused on 401(k) plans. The full survey is available at https://www.psca.org/research/2020/InvestmentTrends.
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