Target-date funds will be the most prevalent default investment for defined contribution retirement plan participants in the United States, according to a survey by investment management firm PIMCO.

The PIMCO 2008 Defined Contribution Consulting Support and Trends Survey also finds that 90% of investment consultants believe plan sponsors should consider creating their own custom strategies once plan assets exceed US$1 billion. And 62% believe custom strategies may make sense for DC plans with just $200 million in assets.

As plan sponsors consider making their own or selecting a packaged target-date product, 38% of consultants believe they are likely to consider the probability of meeting a retirement-income adequacy goal as the most important factor.

The survey also reveals that two-thirds of investment consultants believe it is critical or very important to provide inflation protection in a DC plan.

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The majority say that preferred asset classes for inflation protection are Treasury Inflation Protected Securities, followed by commodities and real estate. They also see value in diversification into other assets, such as high yield and global fixed income.

“Given the ever-increasing dependence on DC plans as the primary source of retirement income, we’re finding that consulting firms are bringing their most sophisticated asset allocation capabilities to plan sponsors,” says Stacy Schaus, senior vice-president and PIMCO’s defined contribution practice leader.

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