U.S. defined contribution pension plan sponsors are increasingly offering custom target-date funds, according to a new report by the Defined Contribution Institutional Investment Association.

The report, which analyzed 100 DC plans in both the public and private sectors, found the plan sponsors used more than 1,000 investment strategies involving custom target-date funds in 2021, up from 673 in 2017. 

It noted two-thirds (67 per cent) of plan sponsors reported using custom target-date strategies that are managed through retirement and the median plan — valued at US$4.7 billion — had 43 per cent of its assets in a custom target-date fund solution.

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Among the DC plan sponsors, the median exposure to fixed income was 54 per cent, while the spread in median exposure to equities fluctuated from 90 per cent for 2065 strategies to 30 per cent for income strategies.

The report also found nearly all (96 per cent) DC plan sponsors reported using at least one inflation-sensitive asset class within their custom target-date fund portfolios in 2021. Among these plan sponsors, two-fifths (39 per cent) used three or more sub-asset classes, while 31 per cent used two and 26 per cent used just one. 

Notably, the use of public U.S. real estate investment trusts increased from 18 per cent in 2018 to 40 per cent in 2021, while use of global REITS decreased from 37 per cent to 23 per cent during the same period.

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