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Focus on Funds: ICI/BrightScope Analysis Offers New Insight on 401(k)s

Focus on Funds

ICI/BrightScope Analysis Offers New Insight on 401(k)s

The March 6, 2015, edition of Focus on Funds analyses the data on employees’ 401(k) plan investment choices, and discusses the trend toward lower fund costs.

Transcript

Stephanie Ortbals-Tibbs, ICI Director, Media Relations: Welcome to Focus on Funds, the Investment Company Institute’s weekly roundup of industry news, ICI activities, and research findings.

Some of the key questions that people ask when they’re discussing retirement savings plans like 401(k)s are, what kinds of choices do employers have, and how do things look in terms of fees for employees who use these plans? Those are some of the important data points that come out of a new groundbreaking study that ICI and BrightScope have done together. And I spoke with ICI Senior Economist Sarah Holden about these two questions of choice, and fees.

Employees have a lot of choices inside these plans.

Sarah Holden, ICI Senior Director, Retirement and Investor Research: So, plan sponsors design their plans so that they offer a wide range of investment choices. They do this because they want to be sure that their participants have a lot of choice in terms of risk and return, but also because they’re dealing with a range of participants. Some are do-it-yourselfers, who like a whole lot of choices, and others would prefer something simpler, like a target date fund. So looking at more than 35,000 plans, we see that on average, there are 25 funds offered in each plan. 

Ortbals-Tibbs: And the equity offering is the most common inside these plans?

Holden: Yes. Equity funds are often nearly all of the 401(k) plans in the database. Domestic equity funds are offered in nearly all plans and on average there are 10 of those offered. But international equity is also available—on average there are three of those in each plan. But we also see that participants are able to invest in equity through target date funds, for example, and about seven in 10 401(k) plans in the BrightScope database include target date funds in their investment lineups, and on average there are eight target date funds offered. Target date funds and other balanced funds offer a mix of equities and fixed-income investing for people.

Ortbals-Tibbs: And what about fixed income? What options do we see there?

Holden: So, employees are also given a choice of fixed-income investments. We see domestic bond funds in nearly all 401(k) plans—on average three domestic bond funds are offered as an investment choice. But more than one-fifth of 401(k) plans have international bond funds in their investment lineups, typically offering one of those. And we also found that the majority of 401(k) plans offer a money fund or a GIC [guaranteed investment contract].

Ortbals-Tibbs: The last thing that we should touch on here is fees, because people always wonder about that, and what the data show is that fees continue to fall.

Holden: Yeah, we see that when we look at 401(k) investing, 401(k) investors do tend to concentrate their assets in lower-cost funds.

Ortbals-Tibbs: That’s this week in funds. See you next week.

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