New study reveals that the majority of participants in public defined contribution retirement plans favor three investment funds, despite access to a myriad of choices.

“A Deeper Look at Asset Allocation” includes analysis and graphic representation of public sector defined contribution (DC) allocation for asset classes by age, tenure, plant type, salary, gender, and plan structure; i.e., whether the DC plan is primary or supplemental, voluntary or mandatory.

Key findings include:

Allocations are concentrated in a few asset classes

    • On a dollar-weighted basis, the largest allocations are to Large-Cap Domestic Equity (32.2%), Stable Value/Fixed Account (16.6%), and Target-Date Fund (Off-the-Shelf) (10.3%).
    • On a participant-weighted basis, Target-Date Fund (Off-the-Shelf) receives the largest allocation (20.2%), followed by Stable Value/Fixed Account (17.6%), and Large-Cap Domestic Equity (17.1%). Target-Date (Custom) has an allocation of 15.4%, although this asset class has an allocation of just 4.6% on a dollar-weighted basis.

Allocation to equity correlates with target-date fund exposure, especially for those under age 50

    • The total equity proportion for participants with at least some target-date fund exposure is 88.7% for the youngest cohort (20-24); 50.0 percent for those aged 65 and older.
    • For those with no target-date fund exposure, the total equity proportion is 16.8% for the youngest cohort (20-24); 51.3% for those aged 30 to 34; 57.3% for those aged 45 to 49; and less than 40.0% for those aged 65 and older.
    • Regardless of age, the average total equity proportion is larger for participants with at least some target-date fund exposure.

Young participants in supplemental DC plans have lower allocation to equities

    • For participants under age 60, the total equity proportion is significantly larger for primary plans than it is for supplemental plans. There is a 47.0 percentage point differential for participants aged 20 to 24, and percentage points for participants aged 25 to 29.
    • The differential in total equity proportion between supplemental and primary plans decreases with age and is only 1.0 percentage point for those participants aged 60 to 64. It turns negative for participants aged 65 and older.

Females are more heavily weighted in target-date funds, males in equities

    • For Target-Date Fund (Off-the-Shelf), females in their 20s have allocations averaging 53.2%, compared with 37.6% for their male counterparts; a difference on average of 15.6 percentage points. This differential decreases with age and is less than 2.0 percentage points for participants aged 55 and older.
    • For Target-Date Fund (Custom), females in their 20s have allocations averaging 19.5%, compared with 13.0% for their male counterparts; a difference on average of 6.5 percentage points. This differential decreases with age and averages roughly 2.0 percentage points for participants aged 45 and older.
    • For Large-Cap Domestic Equity, males in their 20s have allocations averaging 16.5%, compared with 8.1% for their female counterparts; a difference on average of 8.4 percentage points. This differential decreases with age and is less than 3.0 percentage points for participants aged 55 and older.
    • For Broad International Equity, males in their 20s have allocations averaging 10.6%, compared with 4.4% for their female counterparts; a difference on average of 6.2 percentage points. This differential decreases with age and is less than 2.0 percentage points for participants aged 40 and older.
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