Their growing use by plan sponsors and participants are improving portfolio construction and leading to more disciplined participant investment behavior, according to Vanguard research, Professionally Managed Allocation Adoption in 2021.
Target-date and advice approaches have led to a disciplined approach to portfolio risk-taking, with risk levels falling as investors age. They've also helped remedy the problem of extreme allocations that were once more common among DC plan participants. For these reasons, their adoption is likely to continue to rise in the coming years.
Data for this research is from How America Saves 2022—an examination of retirement plan data from nearly 5 million defined contribution DC plan participants across Vanguard's recordkeeping business. Expected next month, a summary of How America Saves provides an early look at additional data and insights intended to help DC plan sponsors optimize plan design.
Professionally Managed Allocation Adoption in 2021 drills into that data, focusing on the shift in responsibility for investment decision-making away from the participant and toward employer-selected investment and advice programs.