“Insights on Investing: Fixed Income Options Within DC Plans,” a study from Prudential’s investment-only defined contribution (IODC) unit, contends that today’s equity-heavy investment menus in defined contribution (DC) plans may not be up to the task of helping participants build and protect an asset base that will generate retirement income.
One way to help participants have a successful retirement is strengthening the lineup of fixed-income offerings in the menu, Prudential’s study said.
According to the nonprofit Plan Sponsor Council of America, the average DC plan has 18 offerings in its investment menu, but only two or three are fixed-income funds. According to Prudential’s report, about 56% of funds offered in DC plan menus are equity funds, followed by balanced funds (20%) and fixed-income funds (12%). The most common fixed-income offerings are domestic bond funds.
“There’s a need to enhance the fixed-income awareness,” Mike Rosenberg, head of Prudential’s IODC unit, told PLANSPONSOR. “Make sure the fixed-income buckets are not forgotten, because they do play a really important role.”
A survey of plan sponsors found that fewer than 30% of plans offer high-yield bond funds or global bond funds as stand-alone menu options. However, more than 50% of sponsors said they would consider these asset classes appropriate as stand-alone menu options.