New Investment Options for Your 401(k)

Employers are shaking up their 401(k) investment line up and pension fund asset allocation

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Just over half of companies have made changes to their 401(k) investment lineups since June 2008. Most employers have both added new funds and eliminated existing funds, according to a small Watson Wyatt survey of 85 senior-level financial executives at large U.S. companies.

The most popular funds added were domestic equities (45 percent), international equities (45 percent), fixed income (38 percent), and target-date funds (28 percent). The companies say they are making changes to the fund lineup to lower costs (42 percent), increase diversification (37 percent), build custom investment strategies (32 percent), or to offer more conservative investment options (11 percent). Almost all of the employers surveyed have a default investment option for employees who fail to choose their own investments, typically a target date fund (71 percent) or a balanced fund (12 percent).

Traditional pension plans are also being shaken up. Almost three quarters (73 percent) of companies with pensions have hired or fired their fund managers since June 2008. “The uptick in activity could be a sign that many funds were caught off guard by the crisis and are now trying to mitigate their risk exposure,” says Carl Hess, global director of investment consulting at Watson Wyatt. Two thirds of companies have made changes or plan to alter their pension fund’s asset allocation in 2009. Overall, the employers project they will decrease their pension fund’s equity allocation by 10 percentage points from 2008.

Tell us, do you have new investment options in your 401(k) this year?