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Nearly half of the 401(k) and other defined contribution retirement plans sponsored by U.S. employers offer or plan to soon offer some type of inflation-protection investment option, according to a survey of U.S. plan sponsors by HR consultancy Mercer.
Among the plan sponsors offering inflation-protection funds, a stand-alone Treasury Inflation Protection Securities (TIPS) fund is the most widely used option (24 percent of respondents) vs. funds that combine multiple inflation-sensitive asset classes (12 percent). Another 10 percent of sponsors intend to offer participants some type of inflation-protection fund within the next year.
Other than TIPS, inflation-sensitive asset classes include commodities, real estate investment trusts (REITs) and natural resources, among others.
The findings are from the
Mercer U.S. Defined Contribution Investment Survey, fielded in May 2011 among a range of U.S. plan sponsors, with the largest share of responses from publically traded companies (48 percent), private companies (21 percent) and not-for-profit organizations (19 percent).
“Given that TIPS and other inflation-protection strategies were not very prevalent just a few years ago within defined contribution plans, we were pleased to see the degree to which U.S. plan sponsors are adding these options,” said Toni Brown, director of U.S. client consulting for Mercer’s investment consulting business. “We attribute this popularity to heightened concern over inflation and the fact that more diversified products are coming into the marketplace.”
When analyzing inflation protection strategies by plan size, those plans with $1 billion or more in assets were most likely to offer or plan to offer some type of inflation protection (66 percent), while those with $250 million or less were least likely (37 percent). Brown said the difference could be attributed to larger plans generally having more involvement from corporate finance departments.
Other key findings from the survey include:
SHRM Video:Risk in 401(k) PlansPlan sponsors are weighing the risk levels in their defined contribution plans, says Stacy Schaus, defined contribution practice leader at PIMCO.
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