Defined contribution industry experts say many DC plans are better equipped to deal with the next economic downturn than they were in 2008.
That's because they are doing more of what they should have been doing all along.
That means seeking multiple ways to achieve diversification, such as reducing allocations to company stock, trimming reliance on equities, reviewing target-date fund glidepaths and exploring alternative investments. It also means enhancing education efforts so participants are thinking about retirement readiness, rather than just asset accumulation.
Consultants and providers say plan executives are paying more attention to the potential impact of future inflation, and the executives also are simplifying investment menus without reducing diversification.
“We see investment committees taking a harder look at their lineups,” said Jeanne Thompson, vice president of market insights for Fidelity Investments, Boston. “In the old days, it was anything and everything. Now, it's three tiers — target-date funds, core funds and self-directed brokerages. They want to make it more digestible. When you have too many choices, you can't make a decision.”
Among Lori Lucas' clients, the major question is, “Where are the gaps in my fund lineup?” said the Chicago-based executive vice president and defined contribution practice leader for Callan Associates. “They are focusing on the next big concern. Inflation is the No. 1 concern.”
Stephen P. Utkus, principal and head of Vanguard Inc.'s center for retirement research in Malvern, Pa., said Vanguard's clients are asking about whether they have adequate inflation-protection options and whether their target-date funds and glidepaths are appropriate for their participants.
DC experts also say that plan executives aren't looking in the rearview mirror at the economic crisis of five years ago. The stock market crash of 2008 “is not the first question we hear” when talking to clients about menu design, Mr. Utkus said.
“You don't want them to forget 2008, but you don't want them to manage their plans looking to 2008,” Ms. Lucas said.
“They're trying not to fight the last battle,” said Josh Charlson, senior mutual funds analyst and target-date strategist at Morningstar Inc., Chicago. “They're looking ahead.”