Defined contribution plan designs emphasizing core equity and fixed-income investment options will become less popular as more plan executives deem the strategy inefficient and as target-date funds take a bigger piece of the pie, according to a new report by Cerulli Associates, Boston.
Core options' “days in defined contribution plan design are numbered,” even though they will continue to represent the biggest element of plan design for years to come, the report said.
Cerulli predicts allocations to core strategies will drop steadily to 50.3% in 2016 from 60.9% last year.
Target-date fund allocations will climb steadily to 22.9% from 12.3% during the period. Other investment categories are expected to remain constant — stable value/money market at 15%; company stock at 5.9%; target-risk funds at 3.5%; and self-directed brokerage accounts at 2.5%.
Offering core options in a tiered system represents a compromise between participants who prefer a target-date approach and a small group of more aggressive investors using a brokerage account, the report said. “But Cerulli does not believe that the compromise investor exists,” said the report.