Five trends shaping asset allocation in key DC menus
Defined contribution plans have develop into a central pillar of the U.S. retirement system, and the asset allocation embedded of their core menus is evolving in ways in which investment professionals shouldn’t ignore. As goal funds proceed to soak up a growing share of plan assets, core menu allocations are increasingly focused on U.S. large-cap equities with an increasing trend toward growth, while fixed income diversification stays limited.
This evaluation draws on a decade of 401(k) plan data and examines the changing composition of core menu allocations. The complete research was recently published by the DCIIA Retirement Research Center.
As defined contribution (DC) plans grow as the first retirement savings vehicle for American employees, we consider investment professionals should concentrate on five notable trends.
1. Target-date funds (TDFs) are taking up
Default investments, particularly TDFs, proceed to account for an increasing share of plan assets. With greater than $4 trillion in assets, TDFs have develop into the predominant default investment option in DC plans, far exceeding the assets of the opposite two “qualified” options, which include balanced funds and managed accounts. Consensus estimates suggest that TDFs represent roughly 40% of DC assets today and will rise to over 50% by 2030[1].
The impact of the rise in TDFs has interesting implications for absolutely the dollars in traditional core menu funds (think non-default investments) and can rely upon each how the general size of the DC market performs and whether other default options gain acceptance in the long run. For example, Cerulli (2025) predicts that total DC assets could rise from $13.6 trillion in 2024 to $19.3 trillion in 2030. Therefore, even when TDFs proceed to build up assets, core menu assets could remain flat and even be net positive, particularly if managed accounts and other standard investment structures that construct portfolios leveraging the core menu proceed to realize traction.
2. The dominance of US large-cap stocks is increasing
Among non-standard options, U.S. large-cap stocks account for the biggest share of core menu allocations, and this share has increased over time, likely reflecting the strong recent performance of U.S. large-cap stocks.
The weights of the respective US market capitalization groups (large, medium and small) are somewhat surprising, especially in comparison to US or global stock market capitalization. For example, U.S. large-cap stocks contain roughly 4 to 5 times more assets in core menus than U.S. mid- and small-cap stocks, despite the fact that mid- and small-cap stocks account for a much larger share of total market capitalization (roughly 16 and 25 times larger, respectively). This gap suggests that menu availability, quite than market size, plays a crucial role in shaping allocations.
3. Growth trumps value:
Although US large-cap growth funds are only barely more represented in core funds than US large-cap value funds, they’ve greater than twice the assets and their share of allocations has increased during the last decade. Growth allocations also are inclined to outperform those of other US equity styles, although the differences narrow with smaller capitalization.
This increasing growth bias is consistent with the strong recent performance of growth stocks, but additionally raises the danger of favor rotation if market leadership shifts toward value.
4. Limited fixed income depth in core menus
While options for stocks, particularly US stocks, are plentiful, there is usually a relative lack of diversification options inside fixed income on core menus. For example, while there are typically nearly 12 stock options available in a core menu, the typical 401(k) plan in our study only included about 4.5 bond funds, primarily a single money option and two U.S. intermediate bond funds.
Fixed income will likely develop into increasingly necessary as more DC participants decide to remain within the plan in retirement, as older investors are inclined to select more conservative portfolios. In our view, the limited change in fixed income offerings in core menus during the last decade represents a niche that plan sponsors must address.
5. Bigger plans are easier
Larger DC plans are inclined to offer fewer diversification options than smaller plans and due to this fact allocate a bigger proportion of assets to more traditional asset classes. This is a somewhat surprising result, considering that larger plans are inclined to be more acquainted with the potential advantages of other investments, particularly people who also sponsor defined profit plans. In theory, larger plans must also have higher access to specialized investment options, including private assets, than smaller plans. It shall be value watching how this apparent discrepancy develops.
Taken together, these trends suggest that asset allocation throughout the DC core menus is formed not only by conscious portfolio construction, but additionally by defaults, availability, and plan design decisions. Understanding how these forces interact will develop into increasingly necessary for investment professionals as DC plans proceed to play a bigger role in retirement planning.
[1] Cerulli (2025)
