- With defined contribution (DC) plans now serving as the primary vehicle for retirement savings in the U.S. and concerns continuing about workers’ ability to reach their retirement goals, the structure of investment lineups has never been more important.
- Regulatory and fiduciary issues play important roles in shaping today’s investment lineups. Adhering to Section 404(c) provides some liability protection for plan sponsors, and offering a qualified default investment alternative (QDIA) may also provide fiduciary relief. In any case, every investment option comes with monitoring obligations.
- Understanding cultural and employee demographics can help guide the construction of a lineup, particularly when it comes to the number and variety of options. As well, the presence of a defined benefit (DB) plan and the company’s preference for a "paternalistic" or "individualistic" culture can help define an appropriate lineup.
- Research and industry trends, especially in the field of behavioral finance, are leading the way toward investment lineups that can achieve more positive retirement savings outcomes for participants.
This Paper Discusses Seven Key Best Practice Considerations:
- Offer asset allocation products such as target date options as the default option.
- Offer either a stable value or money market investment option.
- Consider expanding the fixed income offerings beyond U.S. Investment Grade.
- Provide the full opportunity set of U.S. equities, but keep the number of options low and minimize any overlap.
- Offer a diversified international equities option.
- Minimize sector and other specialty investment options.
- Consider a self-directed brokerage approach to appeal to highly engaged participants.
T. Rowe Price does not select investment options for retirement plans or provide investment advice with respect to that selection. This material is provided for general and educational purposes only and is not intended to provide legal, tax, or investment advice. This material is not individualized to the needs of any benefit plan, nor is it intended to serve as the primary basis for an investment decision.
T. Rowe Price Investment Services, Inc., distributor, T. Rowe Price mutual funds.