The P&I survey also found an embrace of equity. Among the 200 largest retirement plans, a combination of company stock, domestic equity and international equity accounted for 50.9% of the corporate DC assets for the 12 months ended Sept. 30. For public plans, the combination of domestic and international equity represented 47.7%.
Target-date funds, which are counted as a separate allocation by P&I, accounted for 23.6% of corporate DC allocations among the top 200 retirement plans and 23.3% among public plans.
Among the 200 largest retirement plans surveyed by P&I, the target-date assets in DC plans rose 31.9% to $444.7 billion for the 12 months ended Sept. 30 and 117% over five years. The P&I survey also recorded a surge in passive indexed equity investing — up 35.5% to $782.3 billion for the 12 months ended Sept. 30, and up 87.9% over five years. Neither result is a surprise, consultants said.
An annual client survey by NEPC showed target-date funds accounted for an average of 28% of plan assets in 2011, rising to 44% last year. Ninety-five percent of last year’s plan sponsor respondents are using target-date funds as the qualified default investment alternative, according to the survey report that will be published later this month. The survey covered 137 plans with a total of $230 billion in assets and 1.6 million participants.
“Menus are moving more toward index funds,” William Ryan, the Chicago-based partner and head of defined contribution plan solutions at NEPC LLC, wrote in an email.
Thirty-eight percent of client plans offer index target-date funds and 70% of those plans offer a tier of three or more index funds in their core menu.
The NEPC survey found that the percentage of actively managed target-date funds dropped to 46% last year from 58% in 2016. The percentage of index target-date funds climbed to 42% from 34% during this period, and the percentage of blended target-date funds (a mixture of active and passive management) grew to 12% from 8%.
Consultants say index funds appeal to sponsors because they are cheaper than actively managed funds, it’s hard for an active manager in some asset categories such as large-cap U.S. equity to appreciably beat an index fund and because sponsors fear litigation risk from picking underperforming and/or high-fee funds.
Mr. Ryan added that participants’ overall higher equity holdings last year was mostly due to stock market appreciation, with a boost from inertia. “A lot of the equity allocation increase is a function of participant’s long-term buy and hold behavior,” he wrote.