Mercer conducted an internal survey in 2Q 2024¹, examining client actions taken after a consultant-led, in-depth review of their defined contribution (DC) investment menus². The data herein represent actions taken by Mercer’s clients who have completed an investment structure review since September 2022, as reported by their DC consultants. According to the survey, more than 40% of responses indicated that no action was taken by clients.

The data show two primary drivers behind plan sponsor actions, which on the surface may seem in conflict with one another. Plan sponsors are continuing to take action to streamline and consolidate their investment menus while simultaneously ensuring participants have access to diversifying investment options (e.g., self-directed brokerage accounts, inflation protection strategies, and private markets).

• 9% removed active large cap in favor of passive large cap³
• 8% consolidated distinct small and mid-cap funds into SMID cap funds³
• 12% streamlined menus in one or more ways (e.g., removing a non-core asset class, removing or consolidating an overlapping/redundant option, or consolidating separate value and growth options into a single core option)³
• 19% currently offer company stock⁴, down from 29% at end of 2021

While plan sponsors focused on removing actively managed large cap strategies from their menus and consolidating separate small cap and mid-cap strategies into SMID, we noticed a sizeable number of plan sponsors:

(e.g., sector-specific or emerging markets)

(e.g., balanced funds in the presence of target date funds or a large cap manager where there were multiple)

(which allows managers to make the appropriate tactical allocations instead of participants)

These actions show that plan sponsors are concentrating on reducing the number of options within their investment menus and being thoughtful about which asset classes incorporate active management.

The frequency of company stock within investment menus appears to have dropped as well, down 10% from an internal Mercer client survey conducted at the end of 2021, potentially reflecting a desire from clients to remove unnecessary risk from investment menus, in addition to corporate action activities.

• 8% added to their passive offerings³
• 8% added inflation protection options³
• 4% have exposure to private markets now¹
• 23% offer a self-directed brokerage window, with almost half having no restrictions¹

Despite actions taken to cull options from investment menus, plan sponsors appear to also be filling out their investment menus to make sure participants have diverse options when constructing robust portfolios. Plan sponsors have expanded access to index funds, ensuring participants have a comprehensive suite of low-cost options at their disposal. Additionally, plan sponsors worked to implement inflation protection funds which may provide participants an option to help stave off inflation-induced erosion of their account balances. Though private markets exposure remains low, plan sponsors have recently begun to introduce the asset class to their investment menus through multi-asset strategies.   Explore more about why US DC plans have been slow to adopt private investments in our paper titled Looking to the future: The evolution of private investments in US defined contribution plans.    

Mercer believes in an objectives-based approach to investment menu structure design focused on effectively communicating the implementation of asset classes and how they might help participants construct a portfolio that aligns with their goals. While there is no single ideal investment menu structure that is applicable to all clients and plans, there are guiding principles that inform the approach. Generally, providing ample diversification and removing redundancies are among the key pillars of a sound investment menu.

If you are interested in discussing the investment structure of your DC plan, please contact a Mercer consultant.

_{¹All responses are sourced from the Mercer internal survey of defined contribution consulting teams obtained on June 28, 2024. Responses provided were given by defined contribution consulting teams representing 485 clients. It is important to note that these clients did not receive any form of compensation as this was an internal survey of consultants examining client actions. Additionally, Mercer has not identified any material conflicts of interest that would affect the responses. The responses provided may not be representative or typical of all Mercer clients. If you have any further inquiries or require additional information, please do not hesitate to contact us. For a comprehensive list of questions & responses pertaining to this survey results, please contact Mercer US DC Marketing. It is important to recognize that survey results are subject to inherent limitations and uncertainties. The survey results may not capture all relevant factors or market conditions, and client/consultant teams may change. These results should not be construed as personalized investment advice.}

_{²Investment menu: the selection of investment options offered to participants within a DC plan.}

_{³Source: Mercer internal survey of defined contribution consulting teams representing 485 clients. Percentage based on the 277 clients that conducted investment menu reviews since September 2022.}

_{⁴Source: Mercer internal survey of defined contribution consulting teams representing 485 clients. Percentage based on the 279 clients represented that are publicly traded.}

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