Rethinking Investment Options



Concerns about volatility and inflation are driving plan sponsor efforts to re-evaluate investment lineups. According to research from MFS Investment Management, sponsors are tuning into the financial worries of plan participants, and looking for ways to layer protective options into available choices.

Shouldering The Burdens and Mitigating Risks

Worries about retirement readiness, as well as regulatory and administrative burdens are influencing plan sponsor action to reevaluate investment lineups, as Noah Zuss reports:

Almost half of plan sponsors surveyed (45%) have either made or are considering making changes to their fixed income offerings and more than a third (35%) have made or are considering adjusting their inflation-protected investment offerings…,found the MFS 2023 DC Plan Sponsor Survey….The research revealed retirement plan sponsors are increasingly concerned by volatility and inflation as more than half (56%) of all plans say they expect to evaluate their investment lineup in the coming year….Against the backdrop of their participants’ financial concerns, sponsors are more likely to add fixed income and inflation-protection options to their investment offerings than equity options….

It’s wise for retirement plan sponsors to be in tune with participant concerns, and, as Jeri Savage, a retirement lead strategist for investment solutions at MFS  points out, “Participant behavior is driving some of this….[Sponsors are] seeing participants become more conservative in their investments and they want to make sure they have the right array of options to do so.” As challenging as it is to navigate market volatility, inflation, and the related concerns of participants, the MFS survey revealed that retirement plan sponsors are worried about even more:

55% of plan sponsors cited the “changing regulatory and legislative landscape” as “keeping them up at night.” Litigation risk, administrative burdens and “figuring out retirement income solution(s) for the plan” ranked next, and all were considered more worrisome than overall participation rates, fee pressures and having the right number and types of investment options.

Revisiting Investor Predictions

All things considered, the current mood of both participants and plan sponsors is not surprising. Note for example that earlier this year, 500 institutional investment managers surveyed by Natxis predicted plenty of uncertainty steering forward: 

Two-thirds of institutional investors said uncertainty in the markets will prevail during the next year, and respondents were nearly evenly split on whether to be bearish or bullish on stocks, with a slight edge to those who are bearish (54% vs. 46%). The uncertainty of the economic picture factors heavily in institutional investors’ market outlook for 2024. Almost six in 10 (59%) are projecting higher levels of volatility for equity markets, while 39% see a similar uptick for bonds.

Despite some deceleration during 2023, inflation remains above the pre-pandemic norm. While 40% of respondents said they see inflation remaining at elevated levels, 40% see further reductions during 2024. In addition, while interest rate cuts have been an effective tool for cooling the inflation rate, 60% of institutions agree that higher inflation is the new normal. The majority (62%) of respondents said interest rates pose the greatest portfolio risk for 2024.

Mitigating Risks

Given their fiduciary obligation to administer retirement plans for the benefit of participants, it’s important for plan sponsors to continuously evaluate performance. Sponsors are wise as well to keep an eye on litigation risks. Consider, for example, the potential repercussions associated with how limiting investment options negatively impacts retirement funds over time. 

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