DC Plans Shift Toward Passive TDFs, Lower Fees

Between 2004 and 2024, defined contribution plan assets grew 27-fold and the number of participants increased eight-fold, according to NEPC LLC’s 20th annual DC Plan Trends Survey, released this month. Over the same two-decade period, investment management fees declined by 67%, while recordkeeping fees fell by 26% between 2014 and 2024.

“Viewed over a 20-year horizon, these trends reflect structural change rather than cyclical market effects,” said Emma O’Brien, a partner in NEPC, in a statement. “Plan growth and fee compression are the result of deliberate sponsor decisions and ongoing refinement of the DC model.”

From an investment structure and implementation perspective, O’Brien says NEPC uncovered four key trends.

Shift Toward Passive, Blended TDFs

The first shift is one from plan sponsors offering actively managed target-date funds to providing blended or passive TDFs. O’Brien says the two “key drivers” of the trend were a decrease in passive fund implementation fees and an increase in available glide paths.

“Historically, if you wanted a higher-risk glide path, it had to be implemented either actively or in a custom TDF format,” O’Brien says. “Now, these glide paths are available at some passive providers.”

NEPC’s survey found 95% of plans offered TDFs as of year-end 2024. Of those, 59% of plans offered passive products, 22% offered blended options and only 19% offered active options.

During a T. Rowe Price retirement market outlook press briefing in January, Jessica Sclafani, a global retirement strategist for the firm, said T. Rowe Price has observed an “emerging blend trend” of plan sponsors mixing active and passive investment strategies. Some 76% of plan sponsors who responded to T. Rowe Price’s 2025 Global Retirement Savers Study expressed a “belief that active management adds value,” while 78% pointed to passive management “to protect [against] benchmark deviation,” making a case for a blend of both strategies.

Changes to U.S. Large Caps

O’Brien says the second shift revealed by NEPC’s research is that from 2020 to 2025, approximately one-third of plan sponsors made structural changes to their U.S. large-cap equity options—an asset class that represents the largest share of participant assets outside of TDFs—and 12% of plans removed the option.

“Large cap isn’t a very efficient asset class, so it can be challenging for active managers to [use them] to add value,” O’Brien explains. She says plan sponsors are reassessing whether they still want to offer active management and, from there, considering whether to offer traditional style-box offerings, such as value and growth.

Managed Accounts Under Scrutiny

Managed accounts have faced increased scrutiny as well: 14% of DC plans terminated their managed account services since year-end 2023, according to the NEPC data. As of December 2024, 48% of plans offered managed accounts; of those, 10% of participants utilized managed accounts and 9% of their plan assets were invested in managed accounts.

Among all plan sponsors that responded to PLANSPONSOR’s 2025 Defined Contribution Survey, 43.6% said their organization offered professionally managed account services as investment vehicles for participants. PLANSPONSOR, like PLANADVISER, is owned by ISS STOXX.

Determining whether to terminate managed account services “really comes down to assessing the value provided relative to cost,” O’Brien says.

Criticisms of managed accounts include the vehicles’ high fees and lack of availability. To illustrate the point, 70% of plan sponsors that responded to PGIM DC Solutions’ 2025 DC Plan Sponsor Landscape Survey said they would be interested in offering participants a managed account as an opt-in if the fee were 10 basis points or fewer.

In some cases, O’Brien has seen clients terminate their managed accounts based on NEPC plan reviews, while in other cases, she has seen the reviews drive clients to renegotiate fee arrangements—particularly if the clients believe the option, which offers participants personalized retirement investment advice—drives meaningful participant outcomes. O’Brien says that in recent years, she has observed managed account providers and recordkeepers become more willing to negotiate.

Morningstar, a managed account service provider, completed research in January that found adopting a managed account led to an overall increase of 7.7% in participants’ median lifetime wealth ratios—calculated by dividing current net worth by lifetime income—at age 65.

Alternative Assets in Custom Solutions

The last trend O’Brien noted from the firm’s research is an increased use of alternative investments in white-label custom funds. As interest in alternative investments grows in the marketplace, 21% of DC plans surveyed by NEPC used white-label/custom funds, in which O’Brien says NEPC projects there is—and will be—more inclusion of alternative investments.

“Where private assets are used, sponsors tend to incorporate them selectively through custom solutions,” said Mikaylee O’Connor, a partner in and DC team leader at NEPC. “The emphasis remains on understanding how these assets function within a DC framework and ensuring they align with fiduciary objectives.”

NEPC conducted its survey among 14 recordkeepers representing 276 DC plans with $448 billion in aggregate assets and 3.2 million plan participants as of December 31, 2024.

The PLANSPONSOR DC Survey was fielded in mid-2025. The results incorporated the responses of 4,387 plan sponsors.