The good news for employees everywhere is that they have more investment options in their 401(k) plans than ever before. The bad news is that very few of those new options are likely to offer a haven from the bear market.
Of plan sponsors surveyed by Institutional Investor, 91.3 percent offer their employees seven or more investment options. That compares with 79.2 percent two years ago, at the height of the bull market. For those plans that have added options, stocks are the most popular item: 55 percent of respondents have added small-cap U.S. equity to the mix, 33.3 percent have added U.S. growth stocks, and 46.7 percent have added global or international equity. The asset class on the chopping block? Bonds. Nearly 18 percent of respondents say they eliminated domestic bonds from their offerings.
The roster of options will almost certainly continue to grow. More than 52 percent of respondents expect to increase the number of options they offer in the next five years. An additional 31.8 percent will offer the same number of options as they do now, while just 4.5 percent expect to decrease the number of options.
Again, employees will likely get more and more choices in stocks. More than 35 percent of respondents may add a small-cap U.S. equity option. And 50 percent may add a self-directed option to employees to give them even more control over their investments.
Despite the volatility that has gripped the markets the past two years, more and more employees are heeding the advice of investment pros and human resources administrators. Although 13.5 percent of plan sponsors say that less than half of their employees participated in their defined contribution plans two years ago, that number is now 10.2 percent.
How many investment options do you offer (counting a self-directed window as one option)?
Fewer than three 0.0%
Three 1.1
Four to six 7.6
Seven to ten 33.7
11 to 20 39.1
More than 20 18.5
How many did you offer two years ago?
Fewer than three 0.0%
Three 1.1
Four to six 19.8
Seven to ten 47.3
11 to 20 18.7
More than 20 13.2
Which options have you added? (Check all that apply.)
Small-cap U.S. equity 55.0%
Microcap equity 1.7
U.S. equity growth 33.3
Aggressive equity growth 31.7
U.S. equity index 38.3
International or global equity 46.7
International or global bond 5.0
Real estate, including real estate investment trusts 1.7
High-yield bond 10.0
Lifestyle or life-cycle fund 38.3
Self-directed window 16.7
Hedge fund 0.0
What have you eliminated? (Check all that apply.)
Money market fund 11.8%
Balanced fund 11.8
Domestic bond 17.6%
Large-cap U.S. equity 0.0
Lifestyle or life-cycle fund 0.0
Real estate, including REITs 11.8
Small-cap U.S. equity 11.8
Stable value or guaranteed investment contract 11.8
U.S. equity index 0.0
International or global bond 5.9
High-yield bond 0.0
Other 23.5
In the next five years, how do you expect the number of options you offer to change?
Increase significantly 9.1%
Increase slightly 43.2
Stay the same 31.8
Decrease slightly 3.4
Decrease significantly 1.1
Can't say 11.4
Which are you likely to add? (Check all that apply.)
Small-cap U.S. equity 35.4%
Microcap equity 2.1
U.S. equity growth 14.6
Aggressive equity growth 12.5
U.S. equity index 14.6
International or global equity 16.7
International or global bond 4.2
Real estate, including REITs 8.3
High-yield bond 14.6
Lifestyle or life-cycle fund 20.8
Self-directed window 50.0%
Hedge fund 4.2
Which are you likely to drop? (Check all that apply.)
Money market fund 9.1%
Balanced fund 6.8
Bond 4.5
Lifestyle or life-cycle fund 0.0
Stable value or guaranteed investment contract 2.3
Can't say 81.8
Do you offer investment options from more than one vendor?
Yes 74.4%
No 25.6
If so, how many vendors do you use (counting a self-directed window as one vendor)?
Two 15.2%
Three 16.7
Four 10.6
More than four 57.6
Did you offer options from multiple vendors two years ago?
Yes 60.0%
No 40.0
Do you offer more than one option in the same asset class?
Yes 78.0%
No 22.0
Did you do so two years ago?
Yes 71.9%
No 28.1
The results of Pensionforum are based on quarterly surveys of a universe of 800 corporate and 250 public pension plan sponsors. Because of rounding, responses may not total 100 percent.
