December 9, 2011

Retirement Plan Investment Options Beginning to Decline: Aon Report

Amount of target date products offered in defined contribution plans explode

After a decade of increasing investment choices in defined contribution plans, employees want "simpler," and employers appear to be listening.  

A report from Aon Hewitt titled “2011 Trends & Experience in Defined Contribution Plans: Paving the Road to Retirement” finds that on average, plans offered 22 investment options in 2011, up from 20 in 2009; the median also rose from 18 to 22. However, after excluding target-date and target-risk funds, the average number of options dropped from 14 to 13.

“Many companies are offering investment options and advice tools that simplify investment decisions and help employees make better choices,” according to the report. “The prevalence of target-date portfolios and outside investment advisory services—including advice, guidance, and/or managed accounts—has increased significantly in the past two years. Regarding investment fund design, there is a focus on a tiered structure and distinct choices for employees. Target-date portfolios are now a staple in the bulk of plans, with eight in 10 plans offering them.”

The report also notes that retirement income solutions have also garnered significant attention in the marketplace, and employers are focusing more on these services. More employers are adopting both in-plan, and out-of-plan services to assist employees in evaluating and meeting their retirement income needs, while more are contemplating future adoption of these solutions.

Finally, plan expenses are top of mind with many employers, with the majority of plan sponsors (63%) indicating they are concerned about the topic. In recent years, fees have gained significant attention among the media, regulators and litigators. Many plan sponsors have analyzed their current fee structure along with the appropriate way(s) to communicate these messages to employees.”

The surveyed plans have a combined total of more than 12 million employees and $780 billion in assets. Thirty percent of the Fortune 500 is represented. The median/average number of employees is 6,000/23,286, and the median/average plan size is $384 million/$1.64 billion.

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