Traditionally, fixed-income investments have been used to
reduce a portfolio’s overall volatility to an acceptable level without
significantly reducing returns—but that objective may require reconsideration
amidst today’s diverse, multi-generational workforce.
A new whitepaper, authored by the research team at the
American Retirement Association, and sponsored by Janus Henderson Investors,
points out that in the past, investment recommendations may have been more focused
on achieving minimum compliance and “checking the fixed income box” rather than
anticipating participant investment needs at various life stages.
A multi-generational participant population has more complex
“A participant’s investment needs will vary during the
accumulation stage, as a ‘term vested’ participant, and during periods of
decumulation as a ‘retiree’,” Jack Towarnicky, researcher at the American
Retirement Association and co-author of the report, said in a statement. “Needs
may also change when a surviving spouse steps into the participant’s shoes and
continues participation. Many plans also
permit a non-spouse beneficiary to continue the account for a specified
The whitepaper, drawing on the findings of a survey conducted
jointly by the Plan Sponsor Council of America (PSCA) and the National
Association of Plan Advisors (NAPA), points out that while the vast majority of
financial professional respondents said that they considered diversification in
their recommendations, fewer than two-thirds of investment professionals
(63.4%) confirmed that “correlation with equities” was an “essential” or a
“preferred” criterion in recommending fixed income options.
Critically, particularly in view of the diversity of
participant investment practices, as well as participants’ diverse needs and
uses of plan assets, fewer than 25% of investment professionals consider key
participant demographical aspects such as tenure, salary, education level,
presence of other benefits (such as a defined benefit pension plan), gender,
account balance, and/or ethnicity/race.
“Today, an ever-increasing number of plan sponsors encourage
participants to retain assets in the plan after separation,” Nevin Adams, chief
content officer of the American Retirement Association, added. “Additionally, provisions in the Setting
Every Community Up for Retirement (SECURE) Act, such as an extension in the
required minimum distribution age, and expansions of the safe harbors for
lifetime income options may well mean that fiduciaries will—and should—be more
attentive to broader consideration of fixed income alternatives in the future.”
“Fiduciaries have long understood the need for a diversified
menu of investment options. However,
regardless of plan size, plan provisions, or diverse participant populations,
the typical 401k plan has three to four times as many equity options as
fixed-income choices,” Towarnicky concluded.
“As the prevalence and amount of guaranteed retirement income from other
sources declines (e.g., defined benefit pension plans), and as more
participants age into retirement, a more diverse set of fixed income options
may be needed for income generation.”
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