Defined Contribution Plan Sponsors

Markets Change — DC Plans Should, Too

Glidepaths for premixed funds need to be dynamic enough to adapt to evolving capital markets. While glidepaths are designed to serve plan participants over a long time frame, capital markets change in ways that make it shortsighted to stand still. Not so long ago, emerging markets, or even international equities, would not have had an allocation within a typical glidepath, whereas today they are quite common. By the time such non-core areas are added to the typical glidepath, they have usually had a large price increase, which is likely what caught the glidepath manager's attention in the first place.

To avoid this performance chasing, we believe glidepaths should have a dedicated allocation to strategies outside the core. This allows the plan to have exposures to the "next big asset class" or to non-core areas that have the potential to produce attractive returns. This type of forward-looking strategy is complementary to most participant portfolios, thereby enhancing diversification. It also relieves plan sponsors from having to continually monitor changes in the capital markets and alter their investment menus to accommodate new or developing opportunities.