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Mercer
Investment consulting, US DC investment survey

Contact: Andrew Kramer
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2011 US Defined Contribution Investment Survey


 



2011 US DC investment survey

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Mercer issued a short survey (19 questions) in May 2011 to assess plan sponsor's views on investment trends in defined contribution (DC) plans - such as the use of inflation protection options and other asset classes as standalone options, the trend in target date/target risk options and the usage of investment advice/managed accounts. Below are some of Mercer's key findings:

 

  • Protecting participants from potential inflation is a key topic among plan sponsors. Notably, 46% of sponsors offer or intend to offer an inflation protection option. TIPS (Treasury inflation protected securities) are offered as a standalone option in nearly one quarter of surveyed plans, although inflation-sensitive options that are made up of multiple asset classes are gaining traction.

 

  • Among "non-core" asset classes, emerging market equity, international small cap equity and high yield are the preferred strategies among sponsors. Strategies such as gold, commodities and hedge fund/absolute return are not commonly offered, and sponsors do not plan to offer them over the next year.

 

  • Mutual funds continue to be the most prevalent investment vehicle in plans. Plans above $1 billion utilize more separate accounts and collective trusts than smaller-sized plans. For sponsors that are moving away from mutual funds, reducing investment fees is the overriding objective.

 

  • The percentage of participant assets invested in target date options is relatively modest, as 38% of sponsors indicated that 10% or less of plan assets are in these funds. We expect this figure to rise rapidly in the coming years as a result of participant default and re-enrollment activity.

 

  • The use of custom target date options varies significantly by plan asset size. Seven percent of all plans utilize custom target date options. For plans above $5 billion, custom construction rises by 20%.

 

  • While 50% of plans offer investment advice and/or managed accounts, usage among participants is very low. For investment advice, 68% of sponsors indicated that usage is 10% or less, and 71% of sponsors indicated that managed account usage is also 10% or less.

 

  • Of those respondents that offer fixed payout options, the majority of sponsors (80%) offer participants the option to purchase an annuity at retirement outside the plan. The payout of income is typically provided via a standalone investment option (59%) rather than as a component of a target date fund allocation.

 

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Mercer is a leading global provider of investment consulting services, and offers customized guidance at every stage of the investment decision, risk management and investment monitoring process. We have been dedicated to meeting the needs of clients for more than 30 years, and we work with the fiduciaries of pension funds, foundations, endowments and other investors in some 35 countries. We assist with every aspect of institutional investing (and retail portfolios in some geographies), from strategy, structure and implementation to ongoing portfolio management. We create value through our commitment to thought leadership; world-class, independent research; and top-notch consultants with local expertise.

 


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2011 US Defined Contribution Investment survey

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