The average number of investment options in 401(k) plans is 22, and only two of those options are fixed income investments. Generally those two options are intermediate-term core bond funds, offered by 79% of the plans, and stable-value funds, offered by 76%.1

As OppenheimerFunds’ Head of Retirement & Third Party Distribution, Kathleen Beichert, recently discussed with PlanAdviser, she believes those limited choices do not provide plan participants with many opportunities to take advantage of the benefits fixed income investments can offer. These include:

  • diversification from equities
  • some mitigation of the impact of equity market downturns
  • higher yield potential

While core bond funds can help provide these advantages, the total return of these funds may be negatively affected by the rising interest environment we have now.

In our view, it can be beneficial for participants to have the opportunity to invest in a broader array of fixed income funds. Some of the various options plans might consider offering would be:

  • High-yield bond funds, whose returns are less sensitive to interest rate changes.
  • Senior bank loan funds, which have historically been less susceptible to interest rate risk because the interest rate payments offered by bank loans frequently reset and will adjust in accordance with changes in rates.
  • International bond funds, which may have the potential for higher yields and can provide a diversified, global exposure to participants’ investments.

Watch the video to hear Kathleen Beichert’s full discussion with PlanAdviser on this important topic.

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