Fixed-income options are getting short shrift in 401(k) plan investment menus, according to a survey of plan sponsors and retirement plan advisers conducted by the Plan Sponsor Council of America and the National Association of Plan Advisors.
The survey found that equity options in plan menus outnumbered fixed-income options by a margin of 3 to 1, regardless of plan size. Plan sponsors offered an average of 10.3 equity options compared with only 3.7 fixed-income options, according to the survey.
"Fixed-income options have received neither the attention nor prominence of equity alternatives in most defined contribution plan menus," said Nevin Adams, chief content officer of the American Retirement Association and head of the research team for the PSCA and NAPA, in a news release.
The bias against fixed income was visible in other ways. Financial advisers, for example, were more likely to incorporate a Morningstar style box in their core equity recommendations than they were their fixed-income recommendations. Nearly 3 in 4 of the advisers surveyed (72%) used a style box when recommending core equity investments, but only 40% used a comparable style box when recommending core fixed-income investments.
The survey also revealed a gap in the educational support financial advisers receive from asset managers on fixed-income investments. While 34% said the education was outstanding, 14.4% said it needs improvement, more than twice the percentage (6.2%) cited regarding equity investments.
"As plan sponsors and participants are confronted with extreme market volatility in the wake of concerns about the COVID-19 pandemic, it is more important than ever that plan sponsors provide a well-diversified subset of fixed-income options to help participants meet their goals," said Russ Shipman, head of retirement strategy and sales at Janus Henderson Investors, which sponsored the survey, in the news release.
The most common fixed-income options offered by plan sponsors were stable value (67.4%), bond index (61.1%), and money market (38.9%). Nearly three-quarters of advisers said they recommend intermediate/core funds, but only 37.9% of plan sponsors indicated they currently offer them.
The survey was conducted between Jan. 21 and Feb. 21 with 96 plan sponsors and 204 financial advisers focused on 401(k) plans.
