Treasury inflation-protected securities assets are making slow progress in defined contribution plan menus, but they still represent a small portion of participants' investments and asset managers' offerings.
Several surveys show relatively few DC plan participants invest in stand-alone TIPS funds. For example, in recent years, Vanguard Group Inc., Malvern, Pa., found that no more than 4% of participants in its record-kept plans chose a stand-alone TIPS fund if it was offered.
Yet among DC asset managers, TIPS reached $49.8 billion last year, reflecting an almost steady increase from the $8.72 billion in 2007, according to Pensions & Investments data. However, last year's result represented less than 1% of the total $5.84 trillion in internally managed DC assets, based on U.S. institutional tax-exempt assets.
"TIPS are not well understood by typical 401(k) participants," said David O'Meara, the New York-based director of investment services at Willis Towers Watson PLC, remarking on the low rates of investment in stand-alone TIPS funds. If plan executives are trying to streamline their menus, a stand-alone TIPS fund could be vulnerable, he added.
So where is the growth coming from?
"Target-date funds are the driving force of allocations to TIPS," said Mr. O'Meara, echoing the comments of other consultants, researchers and providers.
TIPS funds are being swept along with the tide of inflows to target-date funds, benefiting from glidepaths that contain increasing amounts of inflation protection assets for vintages that are closer to participants' retirement age.
Research by Callan LLC shows that 74% of target-date fund providers offered a TIPS component among off-the-shelf products last year, compared to 67.4% in 2013, said James Veneruso, Callan's senior vice president and defined contribution consultant based in Summit, N.J. The firm surveys providers of 64 target-date fund families, including mutual funds and collective trusts.
In another survey, Callan found the rate of participants investing in a stand-alone TIPS fund or real asset fund has never exceeded 1.91% of total plan assets for plans that offered these options in each year since 2010, he said. Real asset funds often contain a combination of TIPS, commodities and real estate investment trusts as a broader inflation hedge.
These results are part of the Callan DC Index of 100 large plans, most of which are Callan clients. During this period, the percentage of plans offering TIPS or real asset funds rose to about 37% from 15%. Most of the increase took place between 2010 and 2014.
Other annual Callan surveys in recent years show relatively little interest or action by DC executives in adding or subtracting a TIPS fund. If they removed a TIPS fund, they probably replaced it with a real assets fund, Mr. Veneruso said.