Fine-tuning Fixed Income in DC Investment Lineups

Defined contribution (DC) plan investment menus today commonly offer 22 options.1 Of these, fixed income typically accounts for only two or three menu choices, commonly core bond and stable value products. Given the real possibility of rising interest rates, the lack of fixed income options may be limiting DC plan participants’ yield potential, especially for those nearing retirement. We believe plan sponsors should expand their fixed income menus to help to provide all participants a potential hedge against downside risk, access to potentially higher yields with managed risk, and diversification to equities.

In our view, fine-tuning the fixed income offerings in a DC plan lineup is a relatively simple matter for most plan sponsors and should include the following:

  • Cash, Fixed Interest or Stable Value
  • U.S. Intermediate Term Bonds
  • High-Yield Bonds
  • World/International Bonds

For DC plan sponsors seeking more diversification than the four basic components of fixed income, the following are satellite options that may provide higher income potential, but with greater risk and higher volatility:

  • Corporate Bonds
  • Senior Loans
  • Emerging Market Debt

For a deeper dive on how DC plan sponsors can fine-tune and diversify their fixed income offerings, read our paper.

Related Articles:

  1. Balancing Income and Volatility in Fixed Income
  2. Complement Your Core with Senior Loans

1Source: Deloitte: Annual Defined Contribution Benchmarking Survey Ease of Use Drives Engagement in Saving for Retirement 2015 Edition.