Ms. Wrightson and other retirement plan advisers said that while proper plan investment menus were designed to withstand all types of market conditions and should already offer the mix of investments participants need to navigate inflation and whatever else the market throws at them, plan sponsors nonetheless are concerned. They're worried about potential holes in their menus and whether existing funds in different asset classes are still the right ones for their participants.
Plan sponsors are "revisiting the reasons" why they selected the funds they have and making sure they're still comfortable with those reasons, Ms. Wrightson said.
Still, most plan sponsors — despite lingering concerns — are sticking to their investment menus, a fact that retirement plan advisers say reflect forward-thinking plan design.
Investment menus that were built "pre-COVID, pre-bear market and pre-rising rates," were built to have diversification options that have given participants "places to go" to protect themselves with funds like stable value, fixed-income options and a mix of passive and active investments, said Joe DeBello, a managing consultant in the retirement and wealth division of OneDigital Investment Advisors in Orlando, Fla. OneDigital has $103.7 billion in assets under advisement.
"As long as you're diversified, you're not going to necessarily feel the full brunt of what's happening to the market today," he said.
Nevertheless, while OneDigital's plan sponsor clients are not making any menu changes, the firm is "talking and fielding questions about inflation, rising-rate-sensitive funds," he said.
One of the biggest questions for plan sponsors is whether they should continue using stable value funds instead of money market funds in their plans. In the near-zero interest-rate environment that investors have had for the last 15 years, stable value funds have provided a greater return by and large than their money market peers, but now with rising rates, the situation has reversed, Mr. DeBello said.
In a rising-rate environment, money market funds typically perform better because they are more sensitive to rate increases and capture the increase in yield quicker than a stable value fund, he explained.
"We've largely not seen sponsors make decisions around that and we as a firm haven't made decisions to move away from what has been the historical norm of using stable value in lieu of money market in the majority of our plans," Mr. DeBello said.