Growth in target-date funds in general is also expected to accelerate as asset managers turn to product innovations that focus on the needs of retirees.
"We have seen a lot of evolution in the target-date fund space over the past few years, but I would say even just over the last 18 months, we have seen a very fast pace of evolution, specifically focused on decumulation and really helping participants in retirement with the spend-down phase," Ms. Thiemann said.
J.P. Morgan Asset Management, for instance, announced that in the first quarter of 2022, plan sponsors will be able to integrate a personalized spending tool into its flagship SmartRetirement target-date fund series that will support participants with their withdrawals for 35 years beyond their retirement. Meanwhile, Vanguard in September added a new vintage to its suite of target-date funds called Target Retirement Income and Growth Trust that gives participants the option of having an equity allocation of 50% at the age of 65, instead of 30%.
While a 30% equity allocation at age 65 is appropriate for most investors, some would benefit from a greater allocation, particularly those whose wealth and risk tolerance allow for higher discretionary spending in retirement, Vanguard's Mr. Brancato said. Fidelity, too, is seeing a greater need to accommodate retirees as they spend down their savings.
"More and more sponsors are now seeing the retirees stay in the plan, and they feel compelled to offer something specifically to those retirees that allow them to generate managed income off of their savings," Fidelity's Mr. Herman said.
To that end, Fidelity in early 2020 launched its Fidelity Managed Retirement Income Fund, "an asset-allocated mutual fund portfolio geared toward retirees that manages a specific payout over time," he said, adding that five large plan sponsors, including Unum Group, have already adopted the product.
While proprietary mutual funds and target-date funds have flourished in DC plans and are primed for additional growth, exchange-traded funds have languished.
As of June 30, DC assets in proprietary exchange-traded funds totaled a relatively modest $4.5 billion, according to P&I's first year of data on the products.
Looking ahead, ETFs are unlikely to gain traction, industry consultants say. "We're seeing little or no demand in ETFs," CAPTRUST's Mr. Volo said, explaining that many record-keeping platforms don't offer the intraday trading that makes ETFs appealing.
Ms. Thiemann said mutual funds are priced more competitively than ETFs and are easier to administer.
"Going forward, I wouldn't expect ETFs to change in terms of their prevalence in DC plans," she said.
Ongoing innovation in mutual funds and target-date funds will ensure that the popular products continue to thrive in DC plans.