A press release entitled, "BrightScope/ICI Data Show 401(k) Plans Offering Wide Array of Diversified and Cost-Effective Investment Options" tells us, "Employers play a significant role in designing diverse investment lineups in 401(k) plans, according to an updated study from BrightScope, an ISS Market Intelligence business, and the Investment Company Institute (ICI)." The full study, "The BrightScope/ICI Defined Contribution Plan Profile: A Close Look at 401(k) Plans, 2020," contains a number of mentions of money market funds and shows that GICs and money funds account for just 8% of 401(k) plan assets. They write, "When designing their 401(k) plans, employers choose the number and types of investment options in the plan, looking for a diverse range of options. This study also explores the investment menus that employers have chosen for 401(k) plans in the BrightScope Defined Contribution Plan Database and how investments vary by plan size. The BrightScope Defined Contribution Plan Database contains detailed information from audited Form 5500 reports for nearly 60,000 large private-sector 401(k) plans -- plans with between four and 100 investment options and typically 100 participants or more."
The study says, "In 2020, the average large 401(k) plan offered 28 investment options, of which about 13 were equity funds, three were bond funds, and nine were target date funds. Nearly all plans offered at least one domestic equity fund, international equity fund, and domestic bond fund, and 87 percent of plans offered target date funds. Funds include mutual funds, collective investment trusts (CITs), separate accounts, and other pooled investment products."
It explains, "Mutual funds were the most common investment vehicle in 401(k) plans. Mutual funds held 40 percent of large private-sector 401(k) plan assets in the sample in 2020. CITs held 38 percent of assets, guaranteed investment contracts (GICs) held 6 percent, separate accounts held 3 percent, and the remaining 12 percent were invested in individual stocks (including company stock), individual bonds, brokerage, and other investments. Mutual funds accounted for at least half of the assets in all but the very largest plans, where a larger share of assets was held in CITs."
ICI writes, "Equity funds accounted for the largest share of assets in 401(k) plans. In 2020, 42 percent of large 401(k) plan assets were held in equity funds, 30 percent were held in balanced funds (with most of that being held in target date funds), and 8 percent were held in bond funds. GICs and money funds accounted for 8 percent of assets."
They say, "Domestic equity funds, international equity funds, and domestic bond funds -- all of which include both index and actively managed funds -- were the most likely investment options to be offered in large 401(k) plans in 2020. Nearly all large plans offered these types of funds, which can be mutual funds, collective investment trusts (CITs), or separate accounts.... Nearly 90 percent of large plans offered target date funds, and nearly 60 percent offered non–target date balanced funds. Forty-five percent of large 401(k) plans offered money funds, and 71 percent offered guaranteed investment contracts (GICs)."
The survey states, "In 2020, large 401(k) plans included three bond funds (mostly domestic, including both index and actively managed funds) in their investment lineups, on average.... Plans also offered money funds, GICs, and other options. These investments were not offered as widely ... and were often included as the single choice in that investment type.... Larger 401(k) plans tended to be somewhat more likely to offer these options and offered more of these funds when including that investment category."
It continues, "Similarly, domestic bond funds are widely available, offered in 98.0 percent of large 401(k) plans in 2020, but, on average, three domestic bond funds (including both index and actively managed funds) are offered in large 401(k) plans including that investment type. Forty-five percent of large 401(k) plans offer one money fund on average, and about 70 percent of large 401(k) plans offer one GIC on average. About 95 percent of large 401(k) plans in 2020 had index funds in their investment lineups, offering nine index funds on average."
Brightscope/ICI also comment, "Although employers choose the investment options offered in 401(k) plans, participants generally choose where to allocate the money in their accounts among the available options. In 2020, equity funds (including both index and actively managed funds) held the largest share (42.0 percent) of large 401(k) plan assets in the BrightScope database, with the bulk invested in domestic equity funds.... Balanced funds held the next largest share, with 30.2 percent of large 401(k) plan assets, which was divided between target date funds (28.0 percent of assets) and non–target date balanced funds (2.2 percent of assets). Other investments (which include company stock) followed with 12.4 percent of assets, then bond funds (mostly domestic) with 7.5 percent of assets. GICs held 6.4 percent of assets, and money funds held 1.5 percent."
A footnote here states, "Asset allocation in the BrightScope Defined Contribution Plan Database is broadly similar to the EBRI/ICI 401(k) database. At year-end 2020, the EBRI/ICI 401(k) database shows that equity funds held 41.8 percent of assets; balanced funds held 34.7 percent; bond funds held 8.7 percent; money funds held 0.9 percent; GICs and other stable value funds held 5.6 percent; and company stock, other, and unknown assets accounted for the remaining 7.2 percent of assets."
Discussing expenses, the survey says, "The average expense ratio for domestic bond mutual funds (including both index and actively managed funds) was lower than the average expense ratio for domestic equity mutual funds (0.34 percent of assets for domestic bond mutual funds compared with 0.39 percent of assets for domestic equity mutual funds), but expense ratios for international bond mutual funds were higher than those for international equity mutual funds (0.52 percent of assets for international bond mutual funds and 0.50 percent of assets for international equity mutual funds) in 2020.... Balanced mutual funds, which invest in a mix of equity and fixed-income securities, tend to have expense ratios that reflect the share of their investments in the different asset categories. Money market mutual funds had the lowest expense ratio of any of the asset classes with an asset-weighted average expense ratio of 0.19 percent of assets in 2020 for money market mutual funds in large 401(k) plans."
It adds, "Asset-weighted average mutual fund expenses decreased for the consistent 401(k) plans as a group and across all plan size asset and mutual fund investment categories. This is similar to the analysis of snapshots of 401(k) plans over time. For example, the asset-weighted average expense ratio for domestic equity mutual funds (including both index and actively managed funds) among 401(k) plans in the database every year between 2009 and 2020 decreased from 0.65 percent of assets in 2009 to 0.39 percent of assets in 2020, a decline of 26 basis points.... The asset-weighted average expense ratio for international equity mutual funds fell 35 basis points, from 0.84 percent in 2009 to 0.49 percent in 2020, and money market mutual fund expenses fell by 11 basis points, from 0.30 percent in 2009 to 0.19 percent in 2020. The asset-weighted average expense ratio for target date mutual funds decreased from 0.61 percent in 2009 to 0.36 percent in 2020 in these consistent 401(k) plans." (For more on "MMFs in Retirement Plans," see the last section of our Sept. 20 News.)
