HR/benefits managers may not think of 2013 as the year of retirement. That is, in the face of costs to comply with the Affordable Care Act, allocating resources to maintaining a retirement plan may slip down on practitioners' priority list. Companies still do not know the entirety of the ACA's effect on business, and until it gets ironed out, the law will have what experts have called a "chilling" effect on 401(k) plans.

Despite the need to focus on health care reform compliance, though, retirement plans still need to be evaluated to ensure they are helping participants achieve a secure future. To that end, the marketplace is more crowded than ever with options for plan sponsors.

Although target-date funds are among the newest funds available for 401(k)s, they're already among the most popular. As such, their performance is closely scrutinized and - according to some financial benchmarks - has come up short.

Guaranteed-income products, funds that may deliver up to a 5% annual return of lifetime income and double lifetime income over a 12-year period, are also hot, but the product market is still relatively immature.

Large-cap funds are where most employers are placing their bets, mainly because there are a large number of offerings and utilization.

According to Susan Powers, senior vice president of investment consulting at Fidelity Investments, these funds are more skewed to blended funds, or those with a mix of value and growth stocks.


Comprehension needed

Ed Ferrigno, vice president of Washington affairs at the Plan Sponsor Council of America, says the problem is the products are complicated, and employers cannot completely take the risk of investing in them without having a good understanding how they work.

A real area of concern is with bond funds, which currently have a 0% interest rate that creates special challenges. If funds do not have cash options in a portfolio, the implications remain to be seen, but it skews investment decisions because of the lack of options.

These funds have meager yields and are vulnerable to interest increases. Russell Kinnel, director of mutual fund research at Morningstar, Inc., says plan sponsors need to make sure participants know the downside and the upside, but, "right now the upside is fairly limited."



Foreign funds, or world stock funds, are worth adding, some experts say, because although not all are risk-free, there are good yields to be found in emerging markets. For a retirement plan sponsor, there are lower-risk funds to be found in emerging markets with low returns.

Kinnel also points to funds that blend developed and emerging markets together, which are lower cost than most emerging market funds.

Powers notes that emerging markets are not as risky as they once were. "The nature of that has changed, people tend to think of it as small cap market but it's not necessarily," Powers says.

Experts contend that sector stocks also are worth looking into adding as investment options, with care toward which specific sectors. Health care funds, for example, are rising around 17%, but precious metal funds have lost around 20% on average in the last year.

Dan Culloton, an analyst on the mutual fund team at Morningstar, says as always, plan sponsors should continue to take the time either semi-annually or annual to "make sure asset allocation doesn't get out of whack," and to seek advice when needed.

Gillespie is a writer in Washington.

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