When participants assemble their own portfolios, they're essentially creating a "one off," customized portfolio. Because this is a core feature of 401(k) plans, we take it for granted, but perhaps we should be questioning the wisdom of this tradition.
A standalone fixed income investment has markedly different goals than a fixed income allocation within a multi-asset class solution. In such solutions, the diversification attributes as well as the ability to absorb equity shocks are of much higher importance than the allocation s total return.
Participants want to know one thing: will their DC plan help them retire on time? That simple question can help us look beyond investment risk to understand the full range risks that need to be managed to help participants reach their goal.
The so-called "to versus through" debate is really about who participant assets should be invested once they start earning a paycheck. With that in mind, we believe there is a powerful, common sense case for the "to fund" glidepath.