Reinventing the Defined Contribution Core Investment Menu With Pre-Retirees In Mind
Over 70% of existing Defined Contribution (DC) plan assets still reside in the core menu.1 Many of the participants invested in the core are age 50 and older, and therefore may be constructing portfolios to more suitably address their specific, and increasingly complex, financial needs. Here, we will explore three asset classes that merit inclusion in DC investment menus, each of which can serve a specific purpose to meet the
demands of pre-retirees:
Because those closest to retirement are those with the greatest concentration of assets in the core, the investment approach to menu management must be deft. Instead of feverishly chasing alpha — which could introduce more risk than a near-retiree could absorb — managers must take a more measured approach, stalking returns strategically.
Active management can play an important role in providing participants with meaningful levels of income replacement in retirement. But not all asset classes merit an active approach, and not all active approaches are alike. Sponsors must be prudent in choosing where to implement active management, and carefully evaluate the types of alpha-seeking behavior that the chosen managers employ.