Small Plans Slower to Join Lifecycle Fund Trend

October 26, 2007 ( - Recent research from RiverSource Investments and PLANSPONSOR shows the great majority of mid-size and large plans have adopted lifecycle funds in their investment menu, while small plans are slower to jump on the bandwagon.

Nearly 70% of all defined contribution plans in the study have at least one lifecycle fund option in their menu. Eighty-nine percent of large plans (assets over $200 million) and 89.9% of mid-size plans (assets between $20 million and $200 million) reported they offered a lifecycle fund to their participants.

However, only 53.9% of small plans (less than $20 million in assets) in the study offer a lifecycle fund. Of the small plans that do not offer a lifecycle fund, the most common reason cited for this was that lifecycle funds were not board approved (35.5%), while 25% said they felt their plan had enough investment options.

Of plans that offered lifecycle funds, target-date funds were the most common type offered, although over half of mid-sized plans said they offered risk-based funds in their investment lineup. Regardless of plan size, more than 70% of defined contribution plan sponsors in the study that offer a lifecycle fund option use a fund that is proprietary to the plan’s recordkeeping firm. Large plans are only somewhat less likely to use a proprietary fund from the recordkeeper.

Overall, on average 21.5% of participants’ balances are in lifecycle funds, the study found.

When asked whether the “set it and forget it” approach of lifecycle funds is appropriate for most participants, and whether participants feel the need for lifecycle funds, mid-size and large plans were more likely than small plans to embrace the lifecycle approach. Additionally, small plans were almost twice as likely to “strongly agree” with the statement that lifecycle funds require too much education for participants to understand.

A total of 2,335 firms participated in the study, developed jointly by RiverSource and PLANSPONSOR, and conducted via a Web-based anonymous questionnaire. Of these, 1,326 or 56.8% were small plans, 623 were mid-size plans, and 385 were large plans.

A summary of survey findings is here .