Given the real possibility of rising interest rates, the lack of fixed income options on many Defined Contribution (DC) plan investment menus 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 provide all participants a potential hedge against downside risk, access to potentially higher yields with managed risk and diversification to equities.

The Basic Composition of a Diversified Fixed Income Menu

In our view, fine-tuning the fixed income offerings in a DC plan lineup is a relatively simple matter for plan sponsors and should include the following: Cash, Fixed Interest or Stable Value, U.S. Intermediate Term Bonds, High Yield Bonds and World/International Bonds.

Potential Basic Fixed Income DC Plan Lineup

Enhancing the Fixed Income Composition

For DC plan sponsors seeking more diversification than the four basic components of fixed income to aim to stabilize a portfolio as fixed income asset classes move in and out of favor, the following are satellite options that may provide higher income potential, but with greater risk and higher volatility: Corporate Bonds, Senior Loans and Emerging Market Debt.